SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended: Commission file number:
December 31, 1999 0-28138
SPANLINK COMMUNICATIONS, INC.
Minnesota 41-1618845
(State of Incorporation) (I.R.S. Employer Identification No.)
7125 Northland Terrace
Minneapolis, Minnesota 55428
(Address of principal executive offices)
Issuer's telephone number: (763) 971-2000
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, no par value per share
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $9,602,882.
State the aggregate market value of the voting stock (Common Stock) held by
non-affiliates of the registrant based on the closing average price as reported
by The Nasdaq SmallCap Market on March 28, 2000: $25,317,994*
As of March 28, 2000, 5,307,214 shares of the registrant's Common Stock were
outstanding.
Transitional Small Business Disclosure Format (check one): Yes _ No X
- ---------------------------------------------------
*Shares of Common Stock held beneficially by affiliates, i.e., directors,
executive officers and persons known to own beneficially in excess of 5 percent
of the Common Stock have been excluded in calculating this value.
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PART I
Unless the context indicates otherwise, all references to the "Company" or the
"Issuer" in this Annual Report on Form 10-KSB relate to Spanlink Communications,
Inc.
The following United States registered trademarks appear in this Annual Report
on Form 10-KSB and are owned by the Company: Spanlink, ExtraAgent, FastCall, and
PRODiag. WebCall is a registered trademark in the United Kingdom.
ITEM 1. DESCRIPTION OF BUSINESS
General Development
The Company designs, develops and markets computer telephony software and
services that help automate the customer interaction process in call centers
using technologies which link business computer systems, telecommunications
systems and the Internet. The Company has been shifting its focus from
developing custom software for interactive communications systems to developing
configurable software packages. These packages can be configured to meet the
needs of particular customers or markets without modifying the underlying
computer programming. The Company's software employs touch tone, speech
recognition, or dial-pulse recognition to allow consumers to use a telephone,
rather than a company sales or service agent, to bank by phone, place a catalog
order, temporarily suspend newspaper deliveries, obtain up-to-date stock quotes,
check on airline arrivals and departures and provide callers alternatives to
waiting on hold. The software also provides an integration availability between
telephone systems and a company's host computer system that allow a screen full
of information to "pop" up on a customer service agent's computer monitor. In
addition, one of the Company's products can facilitate telephone communication
between a user of the Internet's World Wide Web and a company's sales and
service agents.
In December 1997, the Company acquired the FastCall product line, including all
intellectual property and intangible assets, from Aurora Systems, Inc., a
subsidiary of Comdial Corporation. The acquisition will be paid for by royalties
on future product revenues.
Using the Company's products, a business can allow its customers to interact
with its computer system via the telephone, a fax machine or an Internet Web
browser, or talk to a live "call center" agent when required. (A call center is
a group of employees, called agents, dedicated to handling a high volume of
incoming or outgoing calls). Spanlink products also assist the call center agent
in handling the call efficiently. Products include the EXTRAAGENT and FASTCALL
product families as well as SELECTSOLUTIONS which provides custom interactive
computer telecommunications software applications utilizing the Company's core
software modules. In addition, the Company provides professional software
services, including consulting, training, system integration, customization of
its configurable software packages and maintenance.
The Company's strategy is to develop configurable software packages that meet a
significant portion of the needs of a variety of interactive computer
telecommunications markets. The Company plans to use these standard products as
a foundation on which the Company, with a limited amount of additional work, can
build application packages specific to its target markets. The Company's current
target markets are call centers, newspapers and financial institutions. In
addition, these configurable software packages can be modified to meet the
particular needs of an individual customer within that market. For example, the
Company's ExtraAgent product, which streamlines telephone calls into a call
center, is used across a wide variety of industries. In the newspaper market,
the Company has enhanced ExtraAgent to allow customers to report a delivery
problem or temporarily stop their newspaper service. Historically, the Company
has relied significantly on the marketing and distribution network of Lucent
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Technologies, Inc. (Lucent) to deliver its products and services into the
marketplace. In 1997 and 1998, the Company expanded and strengthened its own
direct sales force to focus on strategic accounts. The Company has created
distribution agreements with telephone and data processing dealers and alliances
with original equipment manufacturers where appropriate. Over the past five
years, the interactive computer telecommunications industry has begun to emerge
as a major component of the communications industry. Based on information
provided by Frost & Sullivan, an independent research organization, the Company
believes that the interactive voice response (IVR) market is approximately $580
million and the computer telephony integration (CTI) market is approximately
$379 million. According to Frost & Sullivan, expected growth rates for the IVR
and CTI markets are approximately 17.5% and 16.1%, respectively.
The Company has sold over 1,000 of its configurable software packages and has
designed and developed SelectSolutions for more than 180 customers in the United
States, Germany, the United Kingdom, the Netherlands, Spain, Belgium, Mexico and
Canada. The Company's products are installed in numerous government agencies and
corporations such as Cargill, Citibank, Eli Lilly, Knight-Ridder, Minneapolis
Star Tribune, Mobil, Northern States Power Company, Panasonic, Pepsico,
Prudential, Shell Oil, Toro, United Air Lines and USA Today. However, the
Company has no long-term sales agreements with any of these entities, and there
can be no assurance that any future sales will be made to these customers.
The Company began operations and was incorporated under the laws of the state of
Minnesota in August 1988. The Company's principal office is located at 7125
Northland Terrace, Minneapolis, Minnesota 55428, its home page can be located on
the Internet at "http://www.spanlink.com" and its telephone number is (763)
971-2000.
Pending Going Private Transaction
On February 25, 2000, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement"), among the Company, Spanlink Acquisition Corp. (the
"Purchaser") and Cisco Systems, Inc. ("Cisco") to take the Company private.
Pursuant to the Merger Agreement, the Purchaser on March 1, 2000 commenced a
tender offer (the "Offer") to purchase all of the outstanding shares of the
Company's common stock at a price of $10.50 per share, net to the seller in
cash, without interest (the "Per Share Amount"). The Purchaser mailed to all
shareholders of record an Offer to Purchase dated February 29, 2000 describing
the Offer and a Letter of Transmittal for use in tendering their shares. On
March 30, 2000, the Purchaser announced that the expiration date for the Offer,
originally set for midnight, Minnesota Time, on Thursday, March 30, 2000, was
extended to 5:00 P.M., Minnesota Time, on Wednesday, April 12, 2000. As of the
date of this Form 10-KSB, the Purchaser is preparing a First Amendment to the
Offer to Purchase which it plans to mail to shareholders as soon as practicable.
It is a condition to the Purchaser's obligations to purchase shares tendered in
the Offer that the number of shares tendered, when added to the number of shares
already owned by the Purchaser, represents at least 67% of the outstanding
shares of the Company's common stock.
Following the completion of the Offer and the satisfaction or waiver of certain
conditions set forth in the Merger Agreement, Purchaser will be merged with and
into the Company (the "Merger"), with the Company as the surviving corporation
in the Merger (the "Surviving Corporation"). In the Merger, each outstanding
Share (other than Shares owned by Purchaser or its affiliates) and other than
Shares held by shareholders who properly exercise dissenters' rights under the
Minnesota Business Corporation Act (the "MBCA") ("Dissenting Shares")) will be
converted into the right to receive the Per Share Amount.
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The Board of Directors of the Company, after receiving the unanimous
recommendation of a Special Committee of the Board comprised entirely of
Independent Directors (the "Special Committee") (i) has approved the Merger
Agreement and the transactions contemplated thereby, including the Offer and the
Merger, (ii) has determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, are advisable, fair to
and in the best interests of the Company's shareholders and (iii) recommends
that the Company's shareholders accept the Offer and tender their shares
pursuant to the Offer.
The Purchaser was formed by Brett Shockley, the Company's Chief Executive
Officer and Chairman of the Board; Loren A. Singer, Jr., the Company's secretary
and a director; and Todd A. Parenteau, a significant shareholder of the Company
(the "Founding Shareholders"); for the purpose of making a tender offer for all
of the Company's common stock. The Purchaser is not a subsidiary of the Company.
Cisco has agreed to purchase 450,000 shares of the Purchaser's non-voting
preferred stock for an aggregate purchase price of $45,000,000. The proceeds
from the sale of the Purchaser's preferred stock to Cisco will be sufficient to
pay for the shares tendered in the Offer. The Founding Shareholders have agreed
to contribute to the Purchaser 2,430,000 shares of the Company's common stock,
which represents 47% of the Company's outstanding shares, in exchange for all of
the voting common stock of the Purchaser. Following the Merger, the Founding
Shareholders will hold all of the voting common stock of the Company and will
therefore control the Company. The Founding Shareholders and Cisco will be the
only shareholders of the Company, and the Company's common stock will cease to
be publicly traded.
Primary Products
All of the Company's packaged products share an open, modular architecture. This
allows the Company to assemble different products into a computer telephony
system to meet the needs of a particular customer without writing custom
software. The Company's software operates in combination with a variety of other
telephone systems, networks, LANs and host computers to allow businesses to
improve their services and typically lower operational costs.
A typical call from a consumer to a business using the Company's Computer
Telephony Integration (CTI) server might adhere to the following scenario. When
a consumer places a call, it passes through the public telephone network to the
business' PBX/ACD system. The PBX/ACD directs the call to the CTI server, where
the Company's software collects the caller's telephone number from the public
telephone network and accesses the host database servers to obtain consumer
information and determines how to manage the call. If no agents are currently
available, the Company's software will give the consumer an estimate of how long
the consumer will have to wait and a list of options. These options might
include leaving a message for immediate or later call back, choosing the music
on hold or transacting business using a touch tone keypad or by speaking
commands. If the caller chooses to wait or leaves a message, the Company's
software directs the information collected from the telephone network, ACD or
computer system to the personal computer of an available call center agent,
along with the call. If an agent is available, the caller is routed to the agent
and the information collected about the caller is popped onto the agent's
desktop computer. Since the agent has the consumer information on the display,
the service to the consumer can be delivered more quickly than if the call
center agent were required to ask the consumer these questions first.
As demonstrated by the example, the Company's computer telephony applications
may employ any or all of voice messaging, interactive voice response (IVR),
computer telephone integration (CTI) and Internet technologies and interface
with the public telephone network, telephone systems and computer systems. The
Company has developed a number of applications that interface with a wide
variety of PBX/ACD Systems using standard telephony interfaces (Analog, T-1,
PRI) and CTI protocol interfaces (TSAPI, TAPI, CT Connect, Digital Telephone Set
emulation). The Company has developed solutions to work with a variety of
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PBX/ACDs, including Lucent Technologies, Nortel, and Siemens Business
Communications. The Company also has developed applications that interface with
various computer systems from manufacturers such as IBM, Digital Equipment,
Hewlett Packard, Sun Microsystems, Unisys, NCR and a variety of network servers.
The Company has experience utilizing various network interfaces (Ethernet, Token
Ring, BISYNC, SDLC, RS-232, X.25) as well as various communication and network
protocols (TCP/IP, IPX/SPX, 3270 and 5250 terminal emulation, SNA, Sockets, RPC,
FTP, Asynch).
The Company believes that its competitors typically focus on one or perhaps two
stand-alone computer technologies like voice messaging, IVR, CTI and the
Internet. These technologies generally operate independently and therefore offer
a limited range of services. Voice messaging vendors are focused on recognizing
the number dialed, answering the call with an appropriate personal greeting and
taking a message. In general, voice messaging does not recognize information
about who is calling or the status of the call center and cannot access a
company computer system to enter and retrieve information or digitally instruct
the PBX where to route a call. IVR applications allow callers to enter or
retrieve information from a business computer system but do not normally
recognize information about who is calling, why they are calling or the status
of the call center. IVR is typically not capable of digitally instructing the
PBX where to route a call and normally has limited or no voice message recording
capabilities. CTI applications derive information from the PBX about the caller
and the status of the call center and from the business computer system to
determine where to route a call. CTI is normally capable of digitally
instructing the PBX where to route a call and the computer system where to route
call related information. It is not usually capable of asking questions of the
caller if more information is required, taking a message or providing an
automated transaction. World Wide Web vendors typically integrate with business
computer systems but have no integration with the PBX or call center. The
Company believes that its ability to utilize all of these technologies and to
integrate them into configurable software packages provides greater customer
service at a reduced cost, resulting in a competitive advantage for the Company.
Other companies are recognizing the benefits of combining these technologies
within a company which is resulting in significant industry consolidation.
The Company has three main types of interactive software products: the
ExtraAgent family (which includes ExtraAgent, WebCall and PhoneFax); FastCall
(which includes FastCall Agent, FastCall Enterprise Server and FastCall
Relationship Router applications); and SelectSolutions. These products can be
combined in a single interactive computer telecommunications system that uses
voice messaging, IVR, CTI and the Internet. A typical sale ranges from $30,000
to $200,000, although a large customer sale could exceed $500,000.
EXTRAAGENT FAMILY
ExtraAgent is a configurable software package which increases productivity and
customer satisfaction in a call center by combining IVR, CTI and voice messaging
technologies to enhance a telephone system's automatic call distribution
capability. The software provides "extra agents" which can handle routine
transactions by allowing callers to use automated features during peak business
hours, resulting in a more even flow of calls for the human agents in a call
center. ExtraAgent has multilingual capabilities and has been sold to customers
in non-English speaking countries.
ExtraAgent software automatically collects the caller's telephone number using
automatic number identification ("ANI") and queries a data base to determine the
best call center agent to handle the call (for example, if the customer account
is in arrears, ExtraAgent could forward the call to a collections agent). Based
on the query, ExtraAgent will evaluate the approximate length of time the caller
may need to wait in order to be connected to a call center agent. After
providing an approximate wait time, ExtraAgent can provide tailored options to
the caller, so the caller can select the best option. When the caller is
connected with the appropriate call center agent, ExtraAgent has the capability
to send a screen of information about the caller to the agent, reducing call
time by approximately 15-20 seconds.
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The Company has sold ExtraAgent to a variety of organizations in its target
markets. For example, media organizations use ExtraAgent to automate some
transactions and handle calls during peak hours or when the call center is not
staffed. In a newspaper environment, subscribers can serve themselves by dialing
ExtraAgent and pressing touch tone keys or speaking commands to suspend delivery
during vacations, register service errors and request replacement papers at any
time. Financial institutions have purchased ExtraAgent to enable their customers
to perform common retail banking transactions by pressing touch tone keys or
speaking commands. For example, at the Stadtsparkasse Hanover Bank in Hanover,
Germany, customers can call the bank at anytime to check on their account
balance and transfer funds by speaking commands.
Other applications in the ExtraAgent family are WebCall and FastPoint. WebCall
integrates the Internet with a call center. Based on the Company's experience in
the telecommunications industry, including participation in industry trade shows
and conferences, the Company believes that WebCall was among the first to
successfully create a link between traditional business telephone systems and a
World Wide Web site. WebCall allows a consumer on the World Wide Web to select a
button (icon) labeled "Talk To A Real Person" and receive a return call from a
call center agent over a standard telephone. The Company believes that WebCall
benefits a variety of applications on the World Wide Web including electronic
commerce, help desk and marketing. Companies that sell products on the Internet
can use WebCall to connect the consumer to a human operator to complete a credit
card transaction and possibly sell other products. Companies that provide on
line help desks can use WebCall to connect a PC user, accessing a home page on
the World Wide Web, with a person at the Company's help desk after the agent has
analyzed the problem through background provided by WebCall. WebCall also
enables companies to better track and assess the results of marketing programs
that utilize the Internet.
FASTCALL FAMILY
FastCall is a family of CTI products. FastCall Agent is a desktop product
focused on the call center agent and knowledge worker. FastCall Relationship
Router is an adjunct processor to a PBX that supports the distribution of calls
to agents and services based on a call center's business rules. FastCall
Enterprise Server is a set of services that enables the sharing of information
between the other FastCall products as well as the ExtraAgent products.
FastCall Agent is a Windows-based software package that provides a broad range
of Computer Telephone Integration (CTI) functionality at call center agent
desktop computers. FastCall Agent uses a patented "middleware" architecture to
link telephony input with both desktop and client server applications. This
approach allows the agent to enable these applications with inbound and outbound
CTI capabilities, without computer code changes within the application itself.
These so-called "screen pops" populate a call center agent's Windows-based
application screen based on the calling number (ANI), called number (DID, DNIS,
ACD group, or other telephone system identifier), or the caller's touch tone
input as the incoming call is received. These applications could include
databases, help desk packages, sales force automation programs, personal
information managers (PIMs), contact managers, word processors, spreadsheets,
customized inquiry systems, or a combination.
FastCall Agent is designed for small and large call centers, such as help desks,
telemarketing centers, customer service departments, technical support groups,
payroll and benefits hot lines, legal and financial institutions, and consulting
consortiums. These applications, ideal for "telephony-enabling", have been
rapidly migrating from desktop video terminals to the Microsoft Windows
environment. FastCall Agent can cost-effectively enhance call center agent
productivity without extensive hardware and software overhauls or agent
retraining. In addition, it eliminates the traditional barriers to implementing
CTI solutions by providing a configurable, off-the-shelf package.
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FastCall Relationship Router is a stand-alone routing package based on CTI
technology. It allows a system administrator to define how customer calls to a
call center should be treated. Before the call is routed information about the
caller may be looked up in a database as well as information about the call
center's operation may be considered. FastCall Relationship Router sends the
call to the appropriate agent, agent group or VRU based on the system
administrator's criteria. The package uses ODBC technology, an industry standard
used by database software companies.
FastCall Enterprise Server provides a means for information about a caller to be
created and shared. As the call moves within a call center from a router to a
VRU and on to an agent the server manages the call's data and provides access to
the data for all of the applications.
SELECTSOLUTIONS
The Company develops customized interactive computer telecommunications software
which it refers to as "SelectSolutions." This portion of the Company's business
enables the Company to create direct customer relationships and apply industry
experience to develop additional configurable software packages for specific
industries. SelectSolutions has provided the foundation for many of the
Company's configurable software packages. By retaining ownership of its software
application source code, the Company builds its library of reusable software
modules which can be incorporated into future products, thereby reducing the
cost and time necessary to develop new configurable software packages. The
Company believes that this product line provides a strategic asset to the
Company and its marketing strategy.
CUSTOMER SUPPORT
Once the Company's products are installed, the Company typically provides
ongoing technical assistance for the life of the system. Technical support
representatives provide technical diagnosis, consulting and engineering support
through the Company's 24-hour customer service center. The Company also provides
remote on-line diagnosis. The Company's products are sold with a limited 90 day
software warranty and one-year hardware warranty, commencing on the date of
acceptance. Technical assistance after the warranty period must be purchased as
part of a separately priced maintenance contract. To date, warranty claims have
been negligible.
MAINTENANCE
After the expiration of the warranty, customers may purchase a renewable
maintenance contract for either software or hardware or both. These contracts
enable customers to continue to access the Company's customer service center.
Post warranty hardware maintenance is provided on a time and materials basis
through company employees and third party maintenance providers. The Company has
no written agreements with these maintenance providers.
PROACTIVE DIAGNOSTICS
PROdiag, the Company's proactive diagnostics package, performs on-line
monitoring and alarm notification of the Company's interactive computer
telecommunications server by performing a series of tests to ensure error-free
operation. PROdiag's diagnostics identify trends that indicate a degradation in
application performance. Upon the discovery of a condition that could result in
system failure, an alarm alerts the Company's technical support center for
remote diagnosis and repair in the event of a system failure. In addition,
PROdiag is capable of reporting functions for notification of error conditions,
status, report of tests, actions taken and results. Notification or reporting of
potentially unstable conditions minimizes potential downtime of the system.
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CONSULTING AND PROFESSIONAL SERVICES
The Company offers a variety of consulting and professional services, including
project and system management, application and human factors. Application
consultants with technical engineering expertise survey and analyze the computer
and telephone infrastructure of a business and recommend interactive computer
telecommunications solutions. The Company believes that these consulting
services enable the Company to introduce its products to potential customers.
Through human factors consulting, the Company assists a business in the
assessment of the ease with which callers can use a business' interactive
computer telecommunications system. Businesses purchasing project management
services retain the Company to monitor and control complex development projects
and the installation of interactive computer telecommunications solutions.
Customers not only purchase project management services in connection with the
purchase of SelectSolutions, but also in connection with the purchase of the
Company's configurable software packages.
HARDWARE SALES
The Company's products utilize the Intuity Platform, a hardware and base
software system manufactured by Lucent. Although the Intuity Platform is premium
priced, the Company has sold this platform to both large and small customers. In
connection with the sale of its software, the Company also sells the necessary
hardware to those organizations requiring the equipment. Currently, most of the
Company's customers who purchase an initial system through the Company's direct
sales force also purchase hardware. Customers that purchase hardware through the
Company receive the equipment manufacturer's warranty which is generally one
year. The Intuity Platform is generally available from a number of different
Lucent distributors. The Company does not anticipate any difficulty in obtaining
the Intuity Platform.
The Company has also introduced its own hardware line, the Gemstone system,
based on components available from Lucent Technologies. This platform provides
the Company a private-labeled offering and serves as an entry point into
non-Lucent accounts.
COMPETITION
The market for computer telephony products is intensely competitive and
characterized by rapid, technological change. The Company believes that
competition in this market is likely to persist and to intensify as a result of
increasing demand for interactive computer telecommunications products. The
Company's principal competitors include Brite Voice Systems, Edify, Intervoice,
Periphonics, Syntellect and large diversified companies such as Lucent
Technologies and IBM for which interactive computer telecommunications systems
are a small portion of their overall business. Other competitors focusing on CTI
applications, such as Davox, Genesys Labs, and Quintus/Nabnasset also compete
with the company's line of interactive computer telecommunications products.
Although the Company has an OEM relationship with Lucent Technologies, Lucent
Technologies also markets some software products not manufactured by the Company
which could compete with the Company's products. Substantially all of the
Company's principal competitors have greater financial, marketing, service,
support, technical and other competitive resources than the Company.
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Ongoing research and product development for interactive computer
telecommunications products is widespread, and as a result, the Company does not
know the full extent of its competition or the stage of its competitors' product
development. In the future, the Company also may face competition from these and
other parties that develop interactive computer telecommunications products.
There can be no assurance that the market for interactive computer
telecommunications products will not ultimately be dominated by strategies other
than those employed by the Company.
The Company believes that the principal competitive factors affecting the market
for interactive computer telecommunications products include the ease of
implementation, flexibility, expansion of customer service provided and cost
savings resulting from improved operational efficiency. The Company believes
that the Company's customer base will broaden as a result of the benefits
provided by its packaged products developed for growing telecommunications
markets. However, there can be no assurance that the Company can maintain its
competitive position against current and potential competitors, especially those
with significantly greater resources.
Current and potential competitors have established or may in the future
establish cooperative relationships to increase the ability of their products to
address the interactive computer telecommunications needs of the Company's
prospective customers. Accordingly, it is possible that new competitors or
alliances may emerge and rapidly acquire significant market share. If this were
to occur, the financial condition or results of operations of the Company could
be materially adversely affected.
MARKETING AND SALES
The Company markets its products in North America through its direct sales force
and pursuant to agreements with Lucent Technologies, Inc. The Company has
identified the following target markets on which it focuses its direct marketing
and sales activities:
o Call centers such as customer service centers, catalog order centers,
ticket reservation centers and businesses such as service bureaus.
o Media markets such as newspapers, cable, television and radio
organizations.
o Healthcare markets such as HMOs, PPOs, dental insurance and other
insurance coverage organizations in the health care field.
o Financial institutions such as banks, credit unions, mortgage banks and
diversified financial service organizations.
o Manufacturers with dealer distribution networks such as lawn and
garden, construction, electronic and other consumer products.
In addition, the Company plans to continue to sell its products through its
relationships with Lucent and its network of telephone and data processing
dealers and original equipment manufacturers, such as business systems hardware
and software manufacturers as well as other PBX manufacturers.
The Company's direct sales employees solicit prospective customers and provide
technical advice and support with respect to the Company's products. During
1999, the Company continued to focus its marketing and sales efforts on
enhancing its sales organization to call directly on system users in its target
markets, and on developing marketing alliances to aid in distribution of the
Company's products.
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The Company's marketing strategy is to target and penetrate specific markets by
selling and marketing broad based configurable software packages in order to
meet the initial needs of a large group of customers quickly and efficiently. In
addition, the Company intends to market and sell industry specific configurable
software packages to each target market to increase penetration and market
share. The Company also plans to utilize SelectSolutions to customize value
added applications for customers in each target market, thereby increasing
penetration and market share.
LUCENT TECHNOLOGIES RELATIONSHIPS
Since 1989, the Company has worked together in a variety of relationships with
various units of AT&T and its successor Lucent Technologies, Inc., to develop
software, distribute interactive computer telecommunications products, transfer
technology and co-market. The Company currently develops its software products
to operate on the Intuity Platform and has an agreement to purchase Lucent
hardware and system software at discounts. The Company utilizes Lucent services
at times to repair and upgrade Lucent products that have been sold by the
Company. As a result of these relationships the Company has been able to broaden
its distribution of products, accelerate the development of products and
generate revenues and profits from the sale of its products. Total revenues from
Lucent were approximately $4,989,000 and $4,957,000 for the years ended December
31, 1999 and 1998, respectively, which represented 52% and 45% of total revenues
for 1999 and 1998, respectively.
The Company's business relationships with Lucent Technologies fall into three
main categories - Voice Processing Co-Marketer (VPC), Independent Software
Vendor (ISV) and Software Licenser. As a VPC, the Company has access to Lucent
proprietary technology and services, receives volume purchase discounts on
hardware and system software and marketing and selling relationships with Lucent
sales and marketing for purposes of selling Company products. The Company has
been named "co-marketer with distinction" certified to handle Lucent's advanced
speech technologies such as speech recognition and ISDN network integration.
This relationship is valuable to the Company for purposes of selling software
products to end customers where Lucent PBX products are installed and where the
Intuity Platform is utilized as part of a customer system. The Company acquires
the Intuity Platform at a discount, installs its software products and resells
the hardware and software to the end customer at a price equal to cost plus a
profit margin.
As an Independent Software Vendor (ISV), the Company provides development
services as ordered by Lucent. The Company's right to provide development
services as an ISV is non-exclusive. Lucent may contract with others to procure
the same or comparable services and no minimum amount of work is guaranteed to
the Company. If the Company develops an application for a Lucent customer, which
requires further modification, Lucent has agreed to solicit the Company's
services provided the customer has been satisfied with the Company's services.
The Company has agreed not to contact Lucent's customers directly. This program
provides a method for the Company to distribute its software products and
services through Lucent to end customers. Usage rights for the developed
software are licensed to Lucent and the end customer for purposes of support.
Rights to the source code, design and materials remain the property of the
Company.
The Company has developed and provides to Lucent for distribution two
configurable call center software packages. The Company provides a license to
Lucent to distribute the software in return for royalty payments to the Company.
The royalty payments will vary based on the number of copies of the software
sold. Lucent is not required to make any minimum royalty payments nor is Lucent
restricted from offering comparable products. The Company also directly
distributes these call center software packages via its direct sales force and
through other dealers.
<PAGE>
One current configurable software package offering incorporates the ability to
communicate in 12 languages and can be sold on a global basis. Since 1993, over
1,300 copies of this call center software package have been sold and installed
by Lucent Technologies.
Research and Product Development
The Company spent $1,582,176 in 1999 and $1,282,549 in 1998 on research and
product development. Prior to 1996, the majority of the Company's research and
product development efforts were funded through the design of customized
products for its customers and have been included in cost of revenues. The
Company intends to fund research and product development efforts independently
through internally generated funds, as well as through customizing products for
its customers. The Company is conducting research into new products and
technologies including voice processing and computer telephony integration
product extensions.
Backlog
The Company fills hardware and packaged software orders as they are received.
Accordingly, the Company periodically has experienced month to month
fluctuations in its net sales due to the receipt or lack of such orders in
particular months. The Company has experienced and may in the future experience
periods in which low unit volume could result in operating losses.
The Company fills orders for custom software and professional services, which
are designed to the customer's specifications and requirements by Company
engineers, according to the customer's schedule, subject to the availability of
engineers to work on the project. On December 31, 1998, the Company had a
backlog of approximately $962,000 of custom software and professional services
orders which were filled in 1999. On December 31, 1999, the backlog of custom
software and professional services orders was $679,000, which the Company
expects to fill during 2000.
Government Regulation
The Company currently is not subject to direct regulation by any government
agency, other than regulations applicable to businesses generally.
Intellectual Property Rights
The Company's policy is to own most software it has developed for its customers.
The Company believes that its success is dependent, in part, upon its
proprietary software and telecommunications technology. The Company relies on
trademark, copyright and trade secret laws, employee and third-party
non-disclosure agreements and other methods to protect its proprietary rights.
There can be no assurance that these agreements will not be breached, that the
Company will have adequate remedies for any breach, or that the Company's trade
secrets will not otherwise become known to or independently developed by
competitors.
The Company acquired three patents in connection with the acquisition of the
FastCall product line from Aurora Systems, Inc. which relate to aspects of the
FastCall software.
The Company is not aware of any violation of proprietary rights claimed by any
third party relating to the Company or the Company's products. Because the
computer technology market is characterized by frequent and substantial
intellectual property litigation, there can be no assurance that the Company
will not become involved in such litigation in the future to either enforce or
defend its intellectual property rights. Intellectual property litigation is
complex and expensive, and the outcome of such litigation is difficult to
predict. There can be no assurance that the Company will have the funds
necessary to defend or pursue such litigation.
<PAGE>
Employees
At December 31, 1999, the Company employed 91employees, of which 87 are full
time. No employee of the Company is represented by a labor union or is subject
to a collective bargaining agreement. The Company believes it maintains good
relations with its employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company currently leases 26,993 square feet for its office and warehouse
facilities located at 7125 Northland Terrace, Minneapolis, Minnesota under a
lease which will terminate on July 1, 2002. Annual rental costs are
approximately $245,000 over the term of the lease. Rent expense for the years
ended December 31, 1999 and December 31, 1998 was $249,145 and $243,747,
respectively.
ITEM 3. LEGAL PROCEEDINGS
On March 14, 2000, the Company, the Purchaser and the Founding Shareholders were
served with a summons and complaint regarding a legal action with respect to the
proposed going private transaction. The plaintiff in the lawsuit is Stephen M.
Russell, a holder of 2,000 shares of the Company's common stock. The lawsuit was
filed in Hennepin County District Court and names as defendants Spanlink
Communications, Inc., Spanlink Acquisition Corp., Brett A. Shockley, Loren A.
Singer, Jr., Todd A. Parenteau, Bruce E. Humphrey, Thomas R. Madison, Joseph D.
Mooney and Timothy E. Briggs. The plaintiff asserts that the individual
defendants breached their fiduciary duty to shareholders in approving the Offer
and Merger and that the Company and the Purchaser have aided and abetted the
alleged violations of fiduciary duty. The plaintiff has requested certification
of a class action on behalf other Company shareholders and that Mr. Russell
serve as the representative of that class. The plaintiff initially sought, among
other things, a court order enjoining the defendants from proceeding with the
Merger, as well as compensatory damages, costs and attorney's fees. On March 20,
2000 the Court in this matter heard arguments from the parties on a motion for
expedited discovery and took the matters presented under advisement. On March
23, 2000 the Court issued a ruling denying the plaintiff's motion. Discovery in
the matter is expected to proceed according to normal timing and procedures. The
Company believes the plaintiff's claims lack merit and intends to defend itself
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's common stock trades on The Nasdaq SmallCap Market under the symbol
SPLK. The following table shows the range of high and low quotations for the
Company's Common Stock on Nasdaq SmallCap Market for the fiscal quarters
indicated, as reported by Nasdaq. The quotations represent prices in The Nasdaq
SmallCap Market between dealers in securities, and do not include retail
mark-up, mark-down or commission, and may not represent actual transactions.
<PAGE>
1999 High Low
---- ---- ---
First Quarter 4 1/2 3 1/4
Second Quarter 3 1/2 2 3/4
Third Quarter 3 1/4 2 5/8
Fourth Quarter 7 7/8 2
1998 High Low
---- ---- ---
First Quarter 3 2
Second Quarter 3 3/4 2 3/4
Third Quarter 4 1/4 2 1/2
Fourth Quarter 4 1/8 3 1/8
(b) Approximate Number of Holders of Common Stock
Approximate Number of Record Holders
Title of Class (as of March 28, 2000)
------------------- ---------------------------------
Common Stock, No par value 112*
* In addition to the record holders, the Company has approximately 1,500 holders
who hold the Company's Common Stock in nominee name and/or street name brokerage
accounts.
(c) Dividends
The Company has not paid any dividends on its Common Stock, and the Board of
Directors intends to retain earnings for the foreseeable future for use in the
expansion of the Company's business.
(d) Recent Sales of Unregistered Securities
Between December 21, 1999 and February 21, 2000, the Company issued an aggregate
of 15,756 shares of Common Stock to certain investors upon the cashless
conversion of warrants to purchase an aggregate of 35,000 shares of Common Stock
at $3.60 per share. Pursuant to such conversions, the warrant holders forfeited
an aggregate of 19,244 shares under the warrants as consideration. For each of
the issuances, the Company relied upon Section 4(2) of the Securities Act, which
provides an exemption for a transaction not involving a public offering.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the Company's statement of operations, expressed as a percentage of
total revenues:
Year ended December 31, 1999 1998
- ----------------------------------------------------- ----------- ----------
Revenues 100.0% 100.0%
Cost of revenues 44.6 45.5
- ----------------------------------------------------- ----------- ----------
Gross profit 55.4 54.5
Operating expenses:
Sales, general and administrative 51.8 40.1
Research and product development 16.5 11.6
- ----------------------------------------------------- ----------- ----------
Total operating expenses 68.3 51.7
Income (loss) from operations (12.9) 2.8
Interest income (expense) ( 1.3) ( .4)
- ----------------------------------------------------- ----------- ----------
Income (loss) before income taxes (14.3) 2.4
Provision for income taxes -- --
Net income (loss) (14.3) 2.4
- ----------------------------------------------------- ----------- ----------
<PAGE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
Revenues
Total revenues decreased 13% from $11,083,239 in 1998 to $9,602,882 in
1999. The Company's revenues are derived primarily from the sale of packaged
(configurable) software, custom software, services, maintenance contracts, and
purchased products. Revenue increases were realized primarily from custom
software and maintenance contracts, with increases of 40% and 52% respectively
over 1998 revenues. The custom software revenue increase resulted from improved
operating efficiencies and completion of several major contracts in 1999.
Maintenance revenue increased due primarily to a major customer contract which
commenced in 1999. Packaged software decreased 17% from 1998 to 1999, resulting
primarily from lower direct sales and lower royalty revenue from the Company's
OEM agreement. Revenue from purchased products decreased 58% from 1998 to 1999.
The Company received several large purchased product (hardware) orders in 1998
related to Year 2000 upgrades and did not receive similar orders in 1999 due in
part to customers delaying purchasing decisions because of Year 2000 concerns.
Cost of Revenues
Cost of revenues decreased 15% from $5,047,616 in 1998 to $4,284,158 in
1999. The decrease was due primarily to the lower overall sales levels and
decreased revenue from packaged software partially offset by lower sales of
lower margin purchased products.
Gross Profit
Gross profit decreased 12% to $5,318,724 in 1999 from $6,035,623 in
1998. Gross profit as a percentage of total revenues was 55% in 1999 and 1998.
Gross profit as a percentage of total revenue will vary from period to period
depending on the product mix of sales revenue.
Sales, General and Administrative
Sales, general and administrative expenses increased 12% in 1999 to
$4,977,262 from $4,440,679 in 1998. Sales, general and administrative expenses
as a percentage of total revenues were 52% in 1999, up from 40% in 1998. The
increase as a percentage of total revenues resulted from the Company's increased
expense levels together with lower revenue levels.
Research and Product Development
Research and product development expenses increased 23% in 1999 to
$1,582,176 from $1,282,549 in 1998. Research and product development expenses as
a percentage of total revenues were 16% in 1999 and 12% in 1998. The increased
expenses resulted primarily from the Company's development work on its FastCall
products. A portion of the Company's custom software development efforts are
included in cost of revenues and are essentially customer sponsored product
development expenses. Accordingly, the Company's total research and development
efforts are greater as a percentage of total revenues than the amounts indicated
above.
Research and product development expenses are charged to operations as
incurred. Costs, otherwise capitalizable, also have been expensed because they
have been insignificant or the timing of realization is not determinable. The
Company expects the dollar amount of product development expenses to increase,
although such expenses as a percentage of total revenues will vary from period
to period.
Net Interest Income
The Company recorded net interest expense of $129,224 for the year
ended December 31, 1999, versus net interest expense of $48,442 for the
comparable period in 1998. The change was attributable to increased borrowings
on the Company's bank credit line to support increased working capital needs.
Income Tax Provision
The Company did not record a tax benefit for the years ended December 31,
1999 or December 31, 1998, as the likelihood of realization of the benefit is
presently not assured.
Net Income (Loss)
The Company realized a net loss of $1,369,938 in 1999 compared with net
income of $263,953 in 1998. The 1999 loss was due primarily to high operating
expenses relative to the decreased revenue levels the Company was able to
achieve.
<PAGE>
Impact of Inflation
The Company believes that, generally, inflation has no appreciable effect
on the Company's operations.
Liquidity and Capital Resources
The Company had cash and cash equivalents of $248,564 as of December 31,
1999, an increase of $87,006 from December 31, 1998. The Company's cash
equivalents and marketable securities are invested primarily in short-term
obligations of government agencies, treasury notes, money market funds or
high-grade commercial paper.
Accounts receivable were $2,526,460 at December 31, 1999 compared with
$2,871,108 at December 31, 1998. Inventory and costs and estimated earnings in
excess of billings decreased from $2,208,973 at December 31, 1998 to $1,150,657
at December 31, 1999. This decrease reflects the lower level of jobs in process
at the end of 1999 compared to the end of 1998. Working capital at December 31,
1999 was $851,960. The Company currently has a $1.7 million working capital line
of credit with a bank which expires April 30, 2000. Borrowings are limited to
the lesser of $1.7 million or 75% of eligible accounts receivable. Borrowings
bear interest at 1% above the bank's prime rate (9.0% currently) and are
collateralized by all of the Company's assets. At March 30, 2000, $750,000 is
outstanding under the line of credit. Although the Company believes that upon
the April 30, 2000 expiration of the line, the agreement will be renewed or
replaced at similar terms, there is no such assurance that such financing will
be available. The Company believes its cash and cash equivalents, together with
cash flow from operations and the additional financing described above and the
cash investment from the Merger described in Item 1 of this Report will be
sufficient to meet the Company's projected capital needs through 2000.
Year 2000 Compliance
The Company has not experienced any material adverse effects or material
disruptions related to Year 2000 issues, and the Company believes that any
significant adverse effects in the future are unlikely.
Forward-Looking Statements
Certain statements made in this Management's Discussion and elsewhere in
the Annual Report on Form 10-KSB, which are summarized here, are forward-looking
statements that involve risk and uncertainties. Actual results may differ
materially from the results anticipated by such forward-looking statements.
Factors that could cause the actual results to differ include, but are not
limited to those discussed below with respect to each forward-looking statement:
o The accuracy of the Company's belief that its current capital resources
will be sufficient to fund current and anticipated business operations
throughout 2000 depends, in part, on meeting anticipated revenue goals,
operating efficiencies and effective expense management, in addition to general
and competitive conditions.
o Any future impact of Year 2000 issues on the Company's business depends
on the accuracy, reliability and effectiveness of the Company's and its
suppliers' and customers' assessment and remediation of Year 2000 issues.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements of the Company immediately follow the
signature page of this Form 10-KSB at the pages set forth below:
Page
Report of Independent Accountants........................................ F-1
Balance Sheet as of December 31, 1999 and 1998........................... F-2
Statement of Operations for the years ended December 31, 1999 and 1998... F-3
Statement of Shareholders' Equity for the years ended December 31,
1999 and 1998.......................................................... F-4
Statement of Cash Flows for the years ended December 31, 1999 and 1998... F-5
Notes to Financial Statements............................................ F-6
<PAGE>
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The Company's Board of Directors and certain biographical information
are set forth below:
BRETT A. SHOCKLEY, age 40, has been the Chief Executive Officer and Chairman of
the Board since 1988 and is a founder of the Company. Mr. Shockley also served
as President from 1988 to September 1994 and since July 1997. Prior to founding
the Company in 1988, Mr. Shockley was a marketing and product management
executive at Onan Corporation, a subsidiary of Cummins Engine Company Inc. From
1982 to 1987, Mr. Shockley was in marketing and product management at ADC
Telecommunications, Inc., a manufacturer of telecommunications equipment.
LOREN A. SINGER, JR., age 44, has been Secretary and a director since 1988 and
is a founder of the Company. Mr. Singer also served as a lead software engineer
from 1988 to June 1997. He currently provides consulting services to the
Company. He has been sole proprietor of Beagle Software since June 1997. Prior
to founding the Company in 1988, Mr. Singer was an Engineering Development
Manager at ADC Telecommunications, Inc. from 1983 to 1987. Mr. Singer was a
design engineer at Porta Systems, Inc. from 1980 to 1983.
THOMAS F. MADISON, age 64, has been a director of the Company since 1996. Mr.
Madison has been the President and Chief Executive Officer of MLM Partners, a
consulting and small business investment company, since January 1993. Since
August 1999, he has been Chairman of AetherWorks, Inc. From December 1996 to
March 1999, he served as Chairman of Communications Holdings, Inc. From February
1994 to September 1994, he served as Vice Chairman and Office of Chief Executive
Officer at Minnesota Mutual Life Insurance Company. From June 1987 to December
1992, Mr. Madison was President of US West Communications Markets, a division of
US West Inc. Mr. Madison was President and Chief Executive Officer of
Northwestern Bell Telephone Company from April 1985 to June 1987. Mr. Madison
also serves on the board of directors of Valmont Industries, Inc., Minnegasco
Reliant Energy, ACI Telecentrics, Incorporated, Digital River and Delaware Group
of Funds. He also serves on the Advisory Board of Aon Risk Services and
Safeguard Scientifics.
JOSEPH D. MOONEY, age 62, has been a director of the Company since 1996. Mr.
Mooney has been CEO of 21 North Main.com since February 1997. Prior to that he
was CEO of PurchaseSoft from April 1996 to February 1997. Prior to that he was
the President of Benchmark Computer Systems, Inc. from January 1973, when he
founded the company, to August 1996. In addition, he was a founder of Benchmark
Network Systems, Inc. and served as its President from 1984 to 1995. He was also
President of Benchmark Nursing Home Systems, Inc., a software company, from 1973
to 1994. Mr. Mooney also has served as a director for both Paradata
International, Inc. and Cado Systems, Inc.
BRUCE E. HUMPHREY, age 42, has been a director of the Company since 1996. Mr.
Humphrey has been the President, Business Development for RJF Agencies since
June 1999. Prior to that, Mr. Humphrey was the President and Chief Executive
Officer of CSC Insurance Center, Inc. from December 1982 when he founded the
company to June 1999. Mr. Humphrey is also a director of K-Sun, Inc.
The Company's executive officers and certain biographical information
are set forth below:
<PAGE>
NAME AGE POSITION
Brett A. Shockley 40 Chairman of the Board, Chief Executive
Officer, President
Stephen H. Bostwick 61 Vice President of Sales
Timothy E. Briggs 52 Vice President of Finance, Chief Financial
Officer
Jonathan M. Silverman 46 Vice President of Research & Development,
Chief Technology Officer
Bryan Willborg 42 Vice President of Customer Solutions
For biographical information on Brett Shockley, please see the description above
with the other directors.
Stephen H. Bostwick Mr. Bostwick joined the Company as Vice President of Sales
and Marketing in December of 1996, and became Vice President of Sales in June
1998. From 1995 to 1996, Mr. Bostwick was Vice President of Sales at Answersoft
in Dallas. From 1993 to 1995, he was in various sales positions for Intervoice
Inc., most recently as Vice President of Direct Sales. Prior to that time he
held various executive sales and marketing positions at other telecommunication
companies, including Vice President of Sales at Teknekron Infoswitch.
Timothy E. Briggs Mr. Briggs joined the Company as Vice President of Finance and
Chief Financial Officer in October of 1997. From 1985 to 1997, Mr. Briggs held a
variety of positions with Empi, Inc., most recently as Executive Vice President
and Chief Financial Officer.
Prior to joining Empi, he served as Treasurer of Conwed Corporation.
Jonathan M. Silverman Mr. Silverman joined the Company in September of 1992. Mr.
Silverman has held several positions with the Company and is currently serving
as Vice President of Research and Development. From 1989 to 1992, Mr. Silverman
was Director of Software Development at Racotek, prior to which he was Section
Manager for distributed systems in Honeywell's Corporate Research Center. Mr.
Silverman has published numerous papers in professional journals and holds
patents on software architecture.
Bryan Willborg Mr. Willborg joined the Company in March 1999. From February 1997
through February 1999, he was the Vice President of Re-Engineering for Jostens
Corporation. Prior to that, he held the position of Director of Corporate
Quality at Pella Corporation from September 1993 through February 1997. For
twelve years prior to September 1993, Mr. Willborg held a variety of positions,
including software development manager and site quality manager (for ISO 9000
certification), at IBM's Rochester, Minnesota location.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers, directors and certain shareholders to file
reports of ownership and changes in ownership of the Company's Common Stock with
the Securities and Exchange Commission. To the Company's knowledge, based on a
review of the copies of such reports furnished to the Company and written
representations that no other reports were required, during the Company's fiscal
year ended December 31, 1999, all Section 16(a) filing requirements were
complied with, except that one late filing of a Form 4 transaction was reported
on a Form 5 and ten form 5 filings were not timely filed.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table provides certain summary information for the past
three years ended December 31, 1999, concerning executive compensation paid or
accrued by the Company to the Company's Chief Executive Officer and the other
executive officers whose salary and bonus compensation earned in 1999 exceeded
$100,000.
<PAGE>
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
-------------------------------------------------- -------------------------
Restricted All
Other Annual Stock Other
Name and Salary Bonus Compensation Awards Options Compen-
Principal Position Year ($) ($) ($) ($) (#) sation
- ---------------------- ---- ------- ------ -------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Brett A. Shockley 1999 180,000 -0- -0- -0- 30,000 -0-
Chief Executive 1998 162,000 32,400 -0- -0- 150,000 -0-
Officer 1997 120,667 -0- -0- -0- -0- -0-
Stephen H. Bostwick 1999 108,000 -0- -0- -0- 17,000 -0-
Vice President of 1998 136,000 15,000 -0- -0- 16,500 -0-
Sales 1997 116,500 -0- -0- -0- 100,000 -0-
Jonathan M. Silverman 1999 109,674 -0- -0- -0- 32,000 -0-
Vice President of 1998 101,640 15,000 -0- -0- 16,500 -0-
Research & 1997 89,100 -0- -0- -0- 60,000 -0-
Development, Chief
Technology Officer
Timothy E. Briggs 1999 102,125 -0- -0- -0- 17,000 -0-
Vice President of 1998 95,000 14,250 -0- -0- 16,500 -0-
Finance, Chief 1997 23,750 -0- -0- -0- 75,000 -0-
Financial Officer
</TABLE>
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or Base Expiration
Name Granted (1) Fiscal 1999 Price ($/Sh)(2) Date
---- ----------- ----------- --------------- ---------
<S> <C> <C> <C> <C>
Brett A. Shockley 30,000 6.7% $2.00 10-25-09
Stephen H. Bostwick 17,000 3.8% $2.00 10-25-09
Jonathan M. Silverman 32,000 7.2% $2.00 10-25-09
Timothy E. Briggs 17,000 3.8% $2.00 10-25-09
</TABLE>
(1) All stock options were granted with an exercise price equal to the fair
market value of the Common Stock on the date of grant, which was the
closing price of the Common Stock as reported on the Nasdaq SmallCap
Market on such date.
Aggregate Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table sets forth certain information with respect to
options exercised during fiscal 1999 by the Company's Chief Executive Officer
and the executive officers named in the Summary Compensation Table, and with
respect to unexercised options held by such persons at the end of fiscal 1999.
<PAGE>
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised in
Acquired Underlying Unexercised The Money Options/ SARS at
on Value Options/SARS at FY-End FY-End(1)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
(#) ($) (#) (#) ($) ($)
- --------------------- --------- -------- --------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Brett A. Shockley -0- -0- 50,000 130,000 256,250 688,750
Stephen H. Bostwick -0- -0- 33,300 100,200 193,163 578,775
Jonathan M. Silverman -0- -0- 57,300 51,200 334,163 290,900
Timothy E. Briggs -0- -0- 48,300 60,200 281,288 343,775
</TABLE>
(1) The calculations of the value of unexercised options are based on the
difference between the closing bid price on Nasdaq SmallCap Market of the Common
Stock on December 31, 1999 and the exercise price of each option, multiplied by
the number of shares covered by the option.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth the information as of March 1, 2000,
regarding beneficial ownership of the Company's Common Stock for (i) each
director, (ii) each executive officer named in the Summary Compensation table
set forth in the "Executive Compensation" section of this proxy statement, (iii)
all directors and executive officers as a group and (iv) each person known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock of the Company.
SHARES BENEFICIALLY OWNED (1)
Name of Beneficial Owner Number Percent
------------------------ --------- ---------
Brett A. Shockley (2) 950,000(4) 18.0%
Loren A. Singer, Jr. (2) 920,000(5) 17.5
Todd A. Parenteau (2) 915,000(6) 17.4
Patrick P. Irestone (3) 318,500(3) 5.8
Timothy E. Briggs 64,065(7) 1.2
Jonathan M. Silverman 57,300(8) 1.1
Stephen H. Bostwick 35,800(9) *
Bryan Willborg 21,250(10) *
Bruce E. Humphrey 34,500(11) *
Thomas F. Madison 33,000(11) *
Joseph D. Mooney 33,000(11) *
All Current Executive Officers and
Directors as a group (9 persons) 2,148,915(12) 38.7%
* Less than 1%.
<PAGE>
(1) Shares of Common Stock subject to options currently exercisable or
exercisable within 60 days are deemed to be outstanding for purposes of
computing the percentage of shares beneficially owned by the person
holding such options, but are not deemed to be outstanding for purposes
of computing such percentage for any other person. Each person or group
identified has sole voting and investment powers with respect to all
shares of Common Stock shown as beneficially owned by them.
(2) The address of Messrs. Shockley, Singer and Parenteau, is 7125
Northland Terrace, Minneapolis, Minnesota 55428.
(3) Includes currently exercisable options to purchase 250,000 shares of
Common Stock and 1,000 shares held by Mr. Irestone's spouse for the
benefit of their child. The address of Mr. Irestone is 268 Meadowood
Lane, Vadnais Heights, MN 55127.
(4) Includes options to purchase 50,000 shares of Common Stock which are
currently exercisable and 10,425 shares owned indirectly by Mr.
Shockley's spouse for the benefit of their children.
(5) Includes options to purchase 20,000 shares of Common Stock which are
currently exercisable.
(6) Includes options to purchase 15,000 shares of Common Stock which are
currently exercisable.
(7) Includes options to purchase 48,300 shares of Common Stock which are
currently exercisable.
(8) Includes options to purchase 57,300 shares of Common Stock which are
currently exercisable.
(9) Includes options to purchase 33,300 shares of Common Stock which are
currently exercisable and 2,500 shares owned indirectly by Mr.
Bostwick's spouse.
(10) Includes options to purchase 21,250 shares of Common Stock which are
currently exercisable.
(11) Includes options to purchase 32,000 shares of Common Stock which are
currently exercisable.
(12) Includes options to purchase 326,150 shares of Common Stock which are
either currently exercisable or exercisable within 60 days.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the employment agreement between the Company and
Patrick P. Irestone as President and Chief Operating Officer of the Company, the
Company loaned an aggregate of $113,500 to Mr. Irestone to pay taxes due as a
result of the grant of 67,500 shares of the Company's Common Stock in February
1996. The loans are evidenced by promissory notes dated (i) December 23, 1996 in
the principal amount of $94,500, with interest accruing at 6.31% per annum, and
(ii) April 17, 1997 in the principal amount of $19,000, with interest accruing
at 5.99% per annum. Pursuant to the original notes, principal and interest were
due one year after the date of the respective notes. Pursuant to the Separation
Agreement and Release dated July 15, 1997, the Company agreed to extend the
loans on an annual basis as they come due through April 14, 2002. The loans are
on a nonrecourse basis and are secured by the 67,500 shares granted to Mr.
Irestone in February 1996.
On February 10, 1998, the Company loaned $25,000 to Brett A. Shockley,
President and Chief Executive Officer of the Company. The loan is evidenced by a
promissory note dated February 10, 1998, which accrues interest at 6% per annum.
The principal and accrued interest are due and payable on February 10, 2003.
<PAGE>
The Company has purchased its Property/Casualty and Group Insurance
policy through RJF Agencies, Inc. Bruce E. Humphrey, a director of the Company,
owns 27% of the outstanding shares of RJF Agencies, Inc. In addition, RJF
Agencies, Inc. acts as the agent for the Company's 401(k) Plan. All transactions
with RJF Agencies, Inc. and Mr. Humphrey were on terms no less favorable than
could be obtained from an unaffiliated third party. The Company did not make any
payments directly to Mr. Humphrey.
During the first half of fiscal year 1999, in order to bridge
short-term capital needs, Timothy E. Briggs, the Company's Vice President of
Finance/CFO loaned the Company various amounts. The maximum amount of the loans
was approximately $750,000. The loans were unsecured and the Company agreed to
pay Mr. Briggs interest at the annual rate of six percent (6%).
The Company believes that the foregoing transactions are on terms no
less favorable to the Company than could have been obtained from unaffiliated
third parties. Such actions have been ratified by a majority of the independent
outside members of the Company's Board of Directors who do not have an interest
in the transactions. All future transactions, including loans, loan guarantees
or forgiveness of loans, with directors, officers or shareholders holding more
than 5% of the Company's outstanding shares, or affiliates of any such persons,
will be on terms no less favorable than could be obtained from an unaffiliated
third party and will be approved by a majority of the independent outside
directors who do not have an interest in the transactions.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits to this Report are listed in the Exhibit Index immediately
following the financial statements following the signature pages to this Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1999; however, the Company filed a Form 8-K dated February 25, 2000, to file a
press release with respect to a going private transaction.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Issuer has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
SPANLINK COMMUNICATIONS, INC.
March 31, 2000 /s/ Brett A. Shockley
Brett A. Shockley, Chairman, President,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities on the dates indicated.
Signature Title Date
/s/ Brett A. Shockley Chairman, President, Chief March 31, 2000
Brett A. Shockley Executive Officer and Director
(Principal Executive Officer)
/s/ Timothy E. Briggs Vice President Finance, Chief March 31, 2000
Timothy E. Briggs Financial Officer
(Principal Financial and
Accounting Officer )
/s/ Loren A. Singer, Jr. Secretary, Director March 31, 2000
Loren A. Singer, Jr.
/s/ Bruce E. Humphrey Director March 31, 2000
Bruce E. Humphrey
/s/ Thomas F. Madison Director March 31, 2000
Thomas F. Madison
/s/ Joseph D. Mooney Director March 31, 2000
Joseph D. Mooney
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Spanlink Communications, Inc.:
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' equity and of cash flow present fairly, in all
material respects, the financial position of Spanlink Communications, Inc. at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the years then ended in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
February 10, 2000, except for Note 14
as to which the date is March 21, 2000
<PAGE>
SPANLINK COMMUNICATIONS, INC
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 98,364 $ 11,358
Restricted cash 150,200 150,200
Accounts receivable, net 2,526,460 2,871,108
Inventory 518,278 505,787
Costs and estimated earnings in excess of billings 632,379 1,703,186
Other current assets 118,215 162,831
----------- -----------
Total current assets 4,043,896 5,404,470
Property and equipment, net 974,449 1,227,089
Purchased intangibles 367,651 491,015
Other assets 138,500 138,500
----------- -----------
Total assets $ 5,524,496 $ 7,261,074
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loan payable $ 1,250,000 $ 985,000
Accounts payable 647,960 1,259,812
Accrued expenses 221,590 294,167
Current portion of long-term liabilities 116,694 107,755
Deferred maintenance revenue 622,380 439,697
Billings in excess of costs 220,782 451,613
Other current liabilities 112,530 -----
----------- -----------
Total current liabilities 3,191,936 3,538,044
Capital lease obligation 69,669 137,006
Royalties payable 222,590 228,883
----------- -----------
Total liabilities 3,484,195 3,903,933
Shareholders' equity:
Preferred stock; undesignated par value;
5,000,000 shares authorized; none issued or outstanding
Common stock; no par value; 25,000,000 shares authorized 8,308,446 8,255,348
and 5,134,087 and 5,105,289 shares issued and
outstanding at December 31, 1999 and 1998, respectively
Accumulated deficit (6,268,145) (4,898,207)
----------- -----------
Total shareholders' equity 2,040,301 3,357,141
----------- -----------
Total liabilities and shareholders' equity $ 5,524,496 $ 7,261,074
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1999 1998
<S> <C> <C>
Revenues $ 9,602,882 $11,083,239
Cost of revenues 4,284,158 5,047,616
----------- -----------
Gross profit 5,318,724 6,035,623
Operating expenses:
Sales, general and administrative 4,977,262 4,440,679
Research and product development 1,582,176 1,282,549
----------- -----------
Total operating expenses 6,559,438 5,723,228
----------- -----------
Income (loss) from operations (1,240,714) 312,395
Interest income (expense), net (129,224) (48,442)
----------- -----------
Net income (loss) $(1,369,938) $ 263,953
=========== ===========
Net income (loss) per share - basic
and diluted $ (0.27) $ 0.05
=========== ===========
Shares used in computing basic and
diluted net income (loss) per share 5,111,509 5,230,018
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Stock Accumulated Shareholders'
Number of Shares Amount Deficit Equity
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balances at December 31, 1997 5,080,500 $ 8,193,663 $ (5,162,160) $ 3,031,503
Exercise of employee stock options 8,910 17,820 17,820
Stock purchased through employee stock purchase plan 15,879 43,865 43,865
Net income 263,953 263,953
-------------------------------------------------------------------
Balances at December 31, 1998 5,105,289 8,255,348 (4,898,207) 3,357,141
Exercise of warrants and employee stock options 16,715 30,631 30,631
Stock purchased through employee stock purchase plan 12,083 22,467 22,467
Net loss (1,369,938) (1,369,938)
-------------------------------------------------------------------
Balances at December 31, 1999 5,134,087 $ 8,308,446 $ (6,268,145) $ 2,040,301
===================================================================
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
SPANLINK COMMUNICATIONS, INC
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
December 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ (1,369,938) $ 263,953
Reconciliation of net loss to net cash used by operating activities:
Depreciation and amortization 576,861 467,257
Provision for doubtful accounts 0 50,000
Changes in current assets and current liabilities:
Accounts receivable 344,648 (807,837)
Costs and estimated earnings in excess of billings 1,070,807 (1,148,614)
Other current assets 32,125 (174,771)
Accounts payable (611,853) 628,549
Accrued expenses (72,577) (266,766)
Other current liabilities 64,383 6,035
--------------- --------------
Net cash provided (used) by operating activities 34,456 (982,194)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (200,857) (309,582)
--------------- --------------
Net cash used by investing activities (200,857) (309,582)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other assets (25,000)
Principal payments on capital lease (58,398) (50,892)
Principal payments on royalties payable (6,293) (221,117)
Proceeds from issuance of loan payable 265,000 985,000
Proceeds from sale of common stock 53,098 61,685
--------------- --------------
Net cash provided by financing activities 253,407 749,676
--------------- --------------
Net increase (decrease) in cash and cash equivalents 87,006 (542,100)
Cash and cash equivalents at beginning of year 11,358 553,458
--------------- --------------
Cash and cash equivalents at end of year $ 98,364 $ 11,358
=============== ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 165,940 $ 72,725
=============== ==============
</TABLE>
See accompanying notes to the financial statements.
<PAGE>
NOTE 1 DESCRIPTION OF BUSINESS ACTIVITIES
- --------------------------------------------------------------------------------
Spanlink Communications, Inc. (the Company) was incorporated in 1988 and
designs, develops and markets streamlined computer telephony software solutions
that help call centers rapidly automate and manage the customer interaction
process via the telephone or the internet. The Company markets its specialized
software systems through its sales organization and licensed sales
representatives throughout North America.
These financial statements have been prepared assuming that the Company
will continue as a going concern. The Company has sustained significant losses
in 1999 and has an accumulated deficit as of December 31, 1999. The
implementation of the Company's business plan is dependent on sufficient
capital. If the Company cannot raise funds, on acceptable terms, it may not be
able to develop or enhance its products, take advantage of future opportunities
or respond to competitive pressures or unanticipated requirements, which could
seriously harm its business, financial condition or results of operations. In
order to raise the necessary capital to do this, subsequent to year-end the
Company has reached an agreement with Cisco Systems, Inc. whereby it would make
a tender offer for all shares held by the public. See Note 14 for further
discussion. Management believes that the funds made available as part of this
agreement, and the enhanced business opportunities with the new shareholder,
will enable the Company to continue as a going concern for a period of at least
one year. However, there can be no assurance that the merger and tender offer
will be successful. To the extent that the merger and tender offer are not
successful, the Company may be required to institute operational changes and
seek out additional sources of capital.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Use of Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the United States drequires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents Cash equivalents consist of highly liquid investments
with original maturities of three months or less which are readily convertible
to cash.
Fair Value of Financial Instruments Cash and cash equivalents are valued
at their carrying amounts which are reasonable estimates of fair value. The fair
value of all other financial instruments approximates cost as stated.
Concentration of Credit Risk Financial instruments which potentially
subject the Company to credit risk consist primarily of accounts receivable. The
Company grants credit to customers in the ordinary course of business and
generally requires a customer deposit upon the signing of any system
installation contracts. No single region or industry represents a significant
concentration of credit risk. See Note 11 for discussion of major customer and
economic relationships.
Revenue Recognition The Company recognizes revenue in accordance with
AICPA Statement of Position (SOP) 97-2, "Software Revenue Recognition," as
amended by SOP 98-4. Revenues derived from system installation contracts are
recognized over the period the Company satisfies its obligations using the
percentage-of-completion method. Progress on the contracts is measured by the
percentage of labor cost incurred to-date to the total estimated labor cost for
each contract. Management considers cost to be the best available measure of
progress on these contracts. Changes in conditions may result in revisions of
estimated costs and earnings during the course of the contract and are reflected
in the accounting period in which the facts which require the revision become
known. In the normal course of business, the Company also may be subject to a
risk of loss by incurring costs to complete a contract in excess of the fixed
bid price.
Revenues derived from software license fees which are not sold as part of
a system installation contract are recognized upon execution of a license
agreement, shipment of the software, fulfillment by the Company of all of its
significant contractual obligations and when collection is probable. Revenues
derived from maintenance contracts are deferred and recognized ratably over the
contract period. The Company provides a 90-day warranty on sales of Company
software products. Estimated warranty costs are accrued at the time of product
shipment.
<PAGE>
Revenues derived from hardware which is not sold as part of a system
installation contract are recognized upon shipment.
The allowance for doubtful accounts was $85,000 and $216,000 at December
31, 1999 and 1998, respectively.
Inventory Inventory consists primarily of computer hardware components
for voice messaging systems and is stated at the lower of cost or market, with
cost being determined by the first-in, first-out (FIFO) method.
Property and Equipment The Company's property and equipment is stated at
cost. Depreciation is calculated using straight-line and accelerated methods
over the estimated lives of the assets. Estimated useful lives generally range
from three to ten years. Significant additions or improvements extending asset
lives are capitalized, while repairs and maintenance are charged to expense as
incurred. Property and equipment includes assets under a capital lease with a
cost of $300,400 at December 31, 1999 and 1998.
Intangible Assets Intangible assets relate to the purchase of the
FastCall product line (Note 12) and are being amortized over a five-year life.
Accumulated amortization at December 31, 1999 and 1998 was $251,927 and
$128,564, respectively.
Research and Product Development Expenditures for research and software
development costs are expensed as incurred. Such costs are required to be
expensed until the point that technological feasibility and proven marketability
of the product are established. Costs otherwise capitalizable after
technological feasibility is achieved have also been expensed because they have
not been significant.
Income Taxes Income taxes are accounted for on the liability method under
the provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
Stock-Based Compensation The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."
Net Income (Loss) Per Share The Company's net income (loss) per share is
computed under SFAS No. 128, "Earnings Per Share". Basic earnings per share
includes no dilution and is computed by dividing net earnings available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of the Company.
NOTE 3 CONTRACTS IN PROGRESS
- -------------------------------------------------------------------------------
Costs, estimated earnings and billings on uncompleted contracts are
summarized as follows:
December 31,
1999 1998
----------- -----------
Costs incurred on uncompleted contracts $ 2,326,908 $ 3,240,601
Estimated earnings 473,129 2,948,751
----------- -----------
2,800,037 6,189,352
Billings to-date (2,388,440) (4,937,777)
----------- -----------
$ 411,597 $ 1,251,575
----------- -----------
This activity is included in the accompanying balance sheet under the
following captions:
December 31,
1999 1998
----------- -----------
Costs and estimated earnings in
excess of billings $ 632,379 $ 1,703,186
Billings in excess of costs and
estimated earnings (220,782) (451,611)
----------- -----------
$ 411,597 $ 1,251,575
----------- -----------
<PAGE>
These amounts are included in current assets and other current
liabilities as all contracts in progress are expected to be completed within one
year.
NOTE 4 property and equipment
- --------------------------------------------------------------------------------
Property and equipment consists of:
December 31,
1999 1998
----------- -----------
Equipment $ 1,786,076 $ 1,585,879
Office furniture and fixtures 432,207 431,546
Leasehold improvements 172,340 172,340
----------- -----------
2,390,623 2,189,765
Less: Accumulated depreciation
and amortization (1,416,174) (962,676)
----------- -----------
Total property and equipment $ 974,449 $ 1,227,089
----------- -----------
NOTE 5 Long-term obligations
- --------------------------------------------------------------------------------
At December 31, 1999, long-term obligations are comprised as follows:
Remaining minimum obligation
in connection with acquisition
of product line (Note 12) $ 272,590
Obligations under capital lease (Note 7) 136,363
---------
408,953
Less current portion (116,694)
---------
$ 292,259
NOTE 6 INCOME TAXES
- --------------------------------------------------------------------------------
The Company has available net operating loss carryforwards for income tax
purposes of approximately $5.7 milion at December 31, 1999 which begin to expire
in the year 2011. A valuation allowance exists for the entire net tax benefit
associated with the tax loss carryforwards and temporary differences at December
31, 1999 and 1998 as their realization presently is not assured. The utilization
of these carryforwards may be subject to limitations based on future changes in
ownership of Spanlink pursuant to Internal Revenue Code Section 382.
Deferred tax assets consist of the following:
December 31,
1999 1998
----------- -----------
Loss carryforward $ 2,100,000 $ 1,727,000
Allowance for doubtful accounts 31,678 81,099
Vacation accrual 34,742 20,615
Other accruals 11,764 15,540
----------- -----------
2,178,184 1,844,254
Valuation allowance (2,178,184) (1,844,254)
----------- -----------
$ 0 $ 0
NOTE 7 LEASES
- --------------------------------------------------------------------------------
Operating Leases The Company leases certain office space and equipment
under noncancelable operating lease agreements. The office space lease requires
the Company to pay certain annual operating costs, including maintenance,
insurance and real estate taxes. Rental expense under these operating leases,
excluding operating expenses for the office space lease, for the years ended
December 31, 1999 and 1998 was approximately $249,145 and $248,699,
respectively. At December 31, 1999, future minimum lease payments under these
operating leases are as follows:
<PAGE>
Year Ending December 31,
- --------------------------------------------------------------------------------
2000 $260,023
2001 260,023
2002 156,213
2003 9,065
-----------
Total minimum payments required $685,324
Capital Leases The Company acquired $300,400 of fixed assets during 1997
under a capital lease arrangement. Borrowings bear interest at 11.5% and are due
in monthly installments of $7,179, including interest, through 2001. Future
minimum payments are as follows:
Year Ending December 31,
- --------------------------------------------------------------------------------
2000 $ 80,892
2001 80,892
-----------
Total minimum lease payments 161,784
Less: Amount representing interest (25,421)
-----------
Present value of net minimum lease payments 136,363
Less: Current portion (66,694)
-----------
$ 69,669
-----------
NOTE 8 SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Warrants In February 1996, the Company issued warrants in a private debt
offering to purchase a total of 80,000 shares of common stock. The warrants are
exercisable for a period of five years from the date of issuance at $3.60 per
share. During 1999, warrants for 10,000 shares of common stock were exercised in
a cashless exercise. As a result, 2,840 shares of common stock were issued. As
part of the Company's initial public offering in May 1996, the underwriters were
granted a five-year warrant to purchase 182,748 shares of common stock at $4.80
per share.
Stock Options On January 31, 1996, the Company's Board of Directors and
shareholders approved the Company's 1996 Omnibus Stock Plan (the Plan). Under
this fixed Plan, 1,300,000 common shares have been reserved for issuance of
restricted shares or for options to be granted to employees, consultants and
non-employee directors. Options granted generally are exercisable over a
four-year or a five-year period from the date of grant at prices not less than
the fair market value at the date the options are granted and expire 10 years
after the date of grant. The Plan allows for the grant of incentive stock
options, nonqualified stock options, reload stock options, stock appreciation
rights and restricted stock. In 1996, the Company granted 100,000 fixed options
outside of the Plan. In addition, in 1998 the Company granted 195,000 fixed
options outside the plan. These options generally follow the provisions of the
Plan.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Had compensation cost for the
Company's stock options been determined based on the fair value at the grant
date consistent with the provision of SFAS No. 123, the Company's net income
(loss) and net income (loss) per share would have increased to the pro forma
amounts indicated below:
Year Ended December 31, 1999 1998
- --------------------------------------------------------------------------------
Net income (loss)-- as reported $(1,369,938) $ 263,953
Net loss-- pro forma $(2,001,835) $ (192,105)
Net income (loss) per share -- basic and
diluted as reported $ (0.27) $ 0.05
Net loss per share-- basic and
diluted pro forma $ (0.39) $ (0.04)
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants during 1999 and 1998: dividend yield of 0%; expected
volatility of 72% and 58%; risk-free interest rate of 6.1% and 5.4%; and
expected lives of 7 and 8 years. The weighted average fair value of options
granted during 1999 and 1998 was $2.05 and $2.07, respectively.
<PAGE>
There are 1,295,000 shares of common stock available for future grant
under the Plan as of December 31, 1999. A summary of stock option activity is as
follows:
<TABLE>
<CAPTION>
Weighted Average
Weighted Remaining
Options Outstanding Price Average Contractual Life
Total Shares Exercisable Per Share Exercise Price
- -------------------------- ----------- --------------------- -------------------- ------------------ ------------------
Outstanding at
<S> <C> <C> <C> <C> <C>
December 31, 1997 830,500 439,490 $2.00-$3.50 $2.49 7.8 years
Granted 495,000 $2.19-$3.81
Exercised (8,910) $2.00
Canceled (65,500) $2.00-$3.50
- -------------------------- ----------- --------------------- -------------------- ------------------ ------------------
Outstanding at
December 31, 1998 1,251,090 554,210 $2.00-$3.81 $2.76 7.2 years
Granted 447,150 $2.00-$4.25
Exercised (13,875) $2.00-$3.25
Canceled (88,355) $2.00-$3.81
- -------------------------- ----------- --------------------- -------------------- ------------------ ------------------
Outstanding at
December 31, 1999 1,596,010 $2.00-$3.81 $2.71 7.6 years
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1999, including options granted outside of the Plan.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Range of Exercise Number Weighted-Average Weighted-Average Number Weighted-Average
Prices Outstanding Remaining Exercise Price Exercisable Exercise Price
Contractual Life
<S> <C> <C> <C> <C> <C>
$2.00-2.94 1,018,760 8.5 years $2.28 385,570 $2.25
$3.00-4.25 577,250 6.0 years 3.46 383,712 3.49
- ---------------------- ---------------- -------------------- -------------------- ---------------- ----------------
1,596,010 7.6 years $2.71 769,282 $2.87
</TABLE>
Employee Stock Purchase Plan The Company has an Employee Stock Purchase
Plan (ESPP) which is available to eligible employees. Under terms of the plan,
eligible employees may designate from 1% to 10% of their compensation to be
withheld through payroll deductions for the purchase of common stock at 85% of
the lower of the market price on the first or last day of the offering period.
Under the plan 200,000 shares of common stock have been reserved for issuance.
As of December 31, 1999, 27,962 shares have been issued under the plan.
Related fair value disclosures under SFAS No. 123 are not significant.
NOTE 9 BENEFIT PLAN
- --------------------------------------------------------------------------------
The Company sponsors a profit sharing and 401(k) plan which provides that
eligible employees may contribute up to 15% of their annual earnings, not to
exceed the maximum allowed under the Internal Revenue Code. The plan covers
substantially all employees after specified periods of service and the
attainment of minimum age requirements. Company contributions are discretionary.
Company contributions to the plan during 1999 were $22,959. There were no
Company contributions to the plan during 1998.
<PAGE>
NOTE 10 MAJOR CUSTOMER AND ECONOMIC RELATIONSHIPS
- --------------------------------------------------------------------------------
The Company generates a significant portion of its revenues from Lucent
Technologies, Inc. (Lucent) under a number of agreements that provide royalties
and product sales to the Company. These agreements terminate at various times
but may be extended if Lucent so chooses.
Total revenues from Lucent were approximately $4,988,670 and $4,957,061
for the years ended December 31, 1999 and 1998, respectively, which represented
52% and 45% of total revenues for 1999 and 1998, respectively. Accounts
receivable from Lucent represented approximately 44% and 59% of total accounts
receivable at December 31, 1999 and 1998, respectively.
NOTE 11 PURCHASE OF PRODUCT LINE
- --------------------------------------------------------------------------------
In December 1997, the Company acquired certain intellectual property
rights related to the FastCall product line from Aurora Systems, Inc. Under the
agreement, the purchase price was established as a minimum of $600,000 subject
to a maximum obligation of $1,100,000 dependent upon future sales of the
FastCall product by the Company over a five-year period. The Company recorded
the acquired rights as intangible assets based on the contractual minimum
obligation of $600,000 plus acquisition-related costs of $16,819. The purchase
price was funded by an initial payment of $100,000, with the balance due over
the five-year term of the agreement. The long and short-term components of the
remaining obligation are determined based on estimated sales of the acquired
product by the Company.
NOTE 12 RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
As of December 31, 1999, the Company has three notes receivable
outstanding totaling $138,500 with current and former officers. The notes bear
interest at 5.99 % to 6.31%. The notes and accrued interest are due in full in
2002 and 2003. The notes receivable are recorded in other assets on the balance
sheet.
NOTE 13 LOAN PAYABLE
- --------------------------------------------------------------------------------
As of December 31, 1999, the Company has a $1.7 million working capital
line of credit with a bank which expires April 30, 2000. Borrowings are limited
to the lesser of $1.7 million or 75% of eligible accounts receivable. At
December 31, 1999, the actual borrowing base was limited to approximately
$1,440,000. Borrowings bear interest at 1% above the bank's prime rate (8.5% at
December 31, 1999) and are collateralized by all of the Company's assets. As of
December 31, 1999, $1,250,000 was outstanding under the line of credit. During
fiscal year 1999, the Company was in violation of certain covenants pursuant to
the credit agreement with the bank. The Company received a waiver of the
covenant violations from the bank.
NOTE 14 SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
In late February 2000, the Company signed a merger agreement with
Spanlink Acquisition Corporation (the Purchaser) to acquire all of the
outstanding shares of common stock of the Company. The Purchaser was formed by
the three original founders of the Company. The founders currently own in excess
of 50% of the outstanding stock of the Company and will own more than 50% of the
outstanding stock of the Purchaser. Thus, this transaction will be accounted for
as a recapitalization with no new basis of accounting. The Purchaser has
commenced a tender offer to acquire all outstanding shares of common stock of
the Company, not already owned by the Purchaser, at a price of $10.50 per share.
The current tender offer commenced on March 1, 2000 and expires on March 30,
2000. As part of the merger agreement, outstanding stock options and warrants of
the Company will either be converted to cash or new stock options in the
surviving company. Cisco Systems, Inc. has agreed to purchase 450,000 of the
Purchaser's preferred stock for an aggregate purchase price of $45 million. The
proceeds from the sale of the preferred stock will be used to pay for the shares
in the tender offer and for working capital.
If 90% or more of the Company's shares in the tender offer are acquired,
the merger will commence without soliciting approval of the Company's
shareholders. If 67% of the Company's shares in the tender offer are acquired,
but less than 90%, the Purchaser will immediately commence the process of
soliciting approval of the Company's shareholders for the merger. Upon
consummation of the merger, the Company will become a privately held
corporation.
In late March 2000, a Company shareholder filed a lawsuit to block the
Company's plans to go private and buy out the public shareholders. The plaintiff
has required certification of a class action on behalf of other Company
shareholders. The Company believes the claims lack merit.
<PAGE>
SPANLINK COMMUNICATIONS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
For the Fiscal Year Ended December 31, 1999
Exhibit
Number Description
2.1 Agreement and Plan of Merger, dated as of February 25, 2000, by and
among Spanlink Acquisition Corp., a Minnesota corporation, Cisco
Systems, Inc., a California corporation and a subscriber for capital
stock of Spanlink Acquisition Corp. and the Company (incorporated by
reference to Exhibit C to Schedule 14D-9 filed February 29, 2000).
3.1 First Restatement of Articles of Incorporation of small business issuer
(incorporated by reference to Exhibit 3.1 to the Registration Statement
on Form SB-2, Commission File No. 333-2022-C).
3.2 Bylaws of small business issuer (incorporated by reference to Exhibit
3.2 to the Registration Statement on Form SB-2, Commission File No.
333-2022-C).
4.1 Specimen of Common Stock Certificate (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form SB-2, Commission File
No. 333-2022-C).
4.2 Form of Bridge Warrant (incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form SB-2, Commission File No. 333-2022-C).
10.1 Letter of Credit Agreement between Inacom, Inc. and the Company dated
January 10, 1996; Personal Guaranties of Brett A. Shockley, Loren A.
Singer, Jr., and Todd A. Parenteau dated January 11, 1997 (incorporated
by reference to Exhibit 10.2 to the Registration Statement on Form
SB-2, Commission File No. 333-2022-C).
10.2 Software Development Agreement between AT&T and Spanlink
Communications, Inc. dated January 28, 1994; Amendment dated February
15, 1997 (incorporated by reference to Exhibit 10.4 to the Registration
Statement on Form SB-2, Commission File No. 333-2022-C).
10.3 Limited Source Code License Agreement between AT&T and Spanlink
Communications, Inc. dated May 4, 1993 (incorporated by reference to
Exhibit 10.5 to the Registration Statement on Form SB-2, Commission
File No. 333-2022-C).
10.4 Escrow Agreement between AT&T, All-Data, Inc. and Spanlink
Communications, Inc. dated March 1, 1994 (incorporated by reference to
Exhibit 10.6 to the Registration Statement on Form SB-2, Commission
File No. 333-2022-C).
<PAGE>
10.5 Software Modification Agreement between AT&T and Spanlink
Communications, Inc. dated May 4, 1993 (incorporated by reference to
Exhibit 10.7 to the Registration Statement on Form SB-2, Commission
File No. 333-2022-C).
10.6 Certification Agreement for Resale of AT&T Voice Processing Products by
Authorized Voice Processing Co-Marketer with Distinction between the
Global Business Communications Systems unit of AT&T and Spanlink
Communications, Inc. dated July 29, 1993; Amendment dated November 30,
1993 (incorporated by reference to Exhibit 10.8 to the Registration
Statement on Form SB-2, Commission File No. 333-2022-C).
10.7 Agreement between NCR GmbH and Spanlink Communications, Inc. dated
March 18, 1994 (incorporated by reference to Exhibit 10.9 to the
Registration Statement on Form SB-2, Commission File No. 333-2022-C).
10.8 Maintenance Agreement between State of New York Department of Labor and
Spanlink Communications, Inc. dated May 6, 1993; Renewal Agreement
dated February 13, 1996 (incorporated by reference to Exhibit 10.10 to
the Registration Statement on Form SB-2, Commission File No.
333-2022-C).
10.9 Office Lease Agreement between Spanlink Communications, Inc. and Ryan
Companies US, Inc. dated December 6, 1997 (incorporated by reference to
Exhibit 10.11 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1996).
10.10 Employment Agreement between Spanlink Communications, Inc. and Patrick
P. Irestone dated September 23, 1994; Amendment dated January 31, 1997
(incorporated by reference to Exhibit 10.12 to the Registration
Statement on Form SB-2, Commission File No. 333-2022-C).*
10.11 Office Lease Agreement between Spanlink Communications, Inc. and
Riverplace Inc. dated August 8, 1994 (incorporated by reference to
Exhibit 10.13 to the Registration Statement on Form SB-2, Commission
File No. 333-2022-C).
10.12 Spanlink Communications, Inc. 1996 Omnibus Stock Plan (incorporated by
reference to Exhibit 10.14 to the Registration Statement on Form SB-2,
Commission File No. 333-2022-C).
10.13 Spanlink Communications, Inc. 1998 Employee Stock Purchase Plan
(incorporated by reference to Exhibit 10.15 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1997).*
10.14 Software Acceptance and Distribution Agreement between the Company and
Lucent Technologies, Inc. dated December 31, 1996 (incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form
10-KSB for the year ended December 31, 1997).
<PAGE>
10.15 Software Co-Marketing Agreement between the Company and Lucent
Technologies, Inc. dated December 31, 1996 (incorporated by reference
to Exhibit 10.17 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10.16 Continuation Agreement between the Company and Lucent Technologies,
Inc., which amends the Software Modification Agreement between the
Company and AT&T dated May 4, 1993 (incorporated by reference to
Exhibit 10.18 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1997).
10.17 FastCall Purchase Agreement between the Company and Aurora Systems,
Inc. dated December 31, 1997 (incorporated by reference to Exhibit
10.19 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).
10.18 Separation Agreement and Release between the Company and Patrick P.
Irestone dated July 15, 1997 (incorporated by reference to Exhibit
10.20 to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1997).*
10.19 Amendment No. 1 to Software Acceptance and Distribution Agreement
between the Company and Lucent Technologies, Inc. dated June 23, 1998
(incorporated by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998).
10.20 Amendment No. 2 to Software Acceptance and Distribution Agreement
between the Company and Lucent Technologies, Inc. dated August 6, 1998
(incorporated by reference to Exhibit 10.20 to the Company's Annual
Report on Form 10-KSB for the year ended December 31, 1998).
10.21 Agreement for Resale of Lucent Technologies Interactive Voice Response
between Lucent Technologies, Inc., the Company and Inacom
Communications, Inc. dated June 5, 1998 (incorporated by reference to
Exhibit 10.21 to the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1998).
10.22 Second Renewal Agreement dated July 24, 1998 to the Maintenance
Agreement between the State of New York Department of Labor and the
Company (incorporated by reference to Exhibit 10.22 to the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1998).
10.23 Letter Agreement Regarding $1,000,000 Line of Credit and $1,000,000
Promissory Note between the Company and Marquette Capital Bank, N.A.,
each dated April 30, 1998 (incorporated by reference to Exhibit 10.23
to the Company's Annual Report on Form 10-KSB for the year ended
December 31, 1998).
<PAGE>
10.24 Letter Agreement Regarding $1,000,000 Line of Credit, $1,000,000
Promissory Note between the Company and Marquette Capital Bank, N.A.,
dated April 30, 1999 and Amendment to Note and Letter Agreement dated
August 15, 1999
23.1 Consent of PricewaterhouseCoopers LLP.
24.1 Power of Attorney (included in the signature page to the Form 10-KSB)
27.1 Financial Data Schedule; included in electronic filing only.
* Management contract or compensatory arrangement.
Marquette Capital Bank N.A. - Letter Agreement
April 30, 1999
To: Spanlink Communications, Inc. (the "Borrower")
7125 Northland Terrace
Minneapolis, MN 55428
Ladies and Gentlemen:
This letter agreement confirms the additional agreements between the Borrower
and Marquette Capital Bank, N.A. (the "Bank"). In consideration of the mutual
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by the parties, the
Borrower and the Bank agree as follows (check all boxes that apply):
1. X Subject to the provisions of this letter agreement, at the
Borrower's request, the Bank shall make loans to the Borrower during the period
from the date of this letter agreement to June 30, 1999 in an aggregate amount
not exceeding $1,700,000.00 at any time outstanding (the "Line of Credit"). The
Line of Credit is a revolving line of credit, and the Borrower may borrow,
prepay and re-borrow under the Line of Credit. The Borrower's obligation to
repay such loans and to pay interest and other charges, fees and expenses
thereon is evidenced by the Borrower's promissory note dated April 30, 1999
payable to the order of the Bank in the principal amount of $1,700,000.00
(together with any amendments, extensions, renewals and replacements thereof,
called the "Revolving Note"). The Bank may credit each such loan to the
Borrower's account number 2510497693 at the Bank. The Bank shall have no
obligation to make any such loan after the occurrence of any Event of Default.
In each period of 12 months ending on April 30 of each year, the Borrower shall
cause the unpaid principal balance of the Revolving Note to be zero for 30
consecutive days. The Borrower shall use all proceeds of such loans solely for
working capital purposes.
X The Borrower shall not at any time permit the unpaid
principal balance of the Revolving Note to exceed the Borrowing Base.
[ ] Subject to the provisions of this letter agreement, on
___________, the Bank shall make one or more loans to the Borrower in an
aggregate amount not exceeding __________ (collectively called the "Term Loan").
The Term Loan is not a revolving line of credit. The Borrower's obligation to
repay the Term Loan and to pay interest and other charges, fees and expenses
thereon is evidenced by the Borrower's promissory note dated ____________
payable to the order of the Bank in the principal amount of ____________
(together with any amendments, extensions, renewals and replacements thereof,
called the "Term Note"). The Bank may credit each such loan to the Borrower's
account number __________ at the Bank. The Bank shall have no obligation to make
any such loan after the occurrence of an Event of Default. The Borrower shall
use all proceeds of the Term Loan solely for ______________________.
[ ] The Borrower also is indebted to the Bank pursuant to the
Borrower's promissory note(s) payable to the order of the Bank in the original
principal amount(s) of _______________ (together with any amendments,
extensions, renewals and replacements thereof, also collectively called the
"Term Note").
2. The Borrower shall pay the following fees to the Bank: N/A.
3. As long as any now existing or hereafter arising debt, obligation or
liability of the Borrower to the Bank (including but not limited to any debt,
obligation or liability relating to any letter of credit) shall remain
outstanding, the Borrower shall comply with the following requirements:
a. The Borrower shall deliver to the Bank, in form and
substance acceptable to the Bank (check all boxes that apply):
X As soon as available, and in any event within 90 days
after each fiscal year of the Borrower, the annual
audited financial statements of the Borrower for such
fiscal year, prepared in accordance with GAAP; and
X As soon as available, and in any event within 90 days
after the end of each fiscal year of the Borrower,
the projected financial statements of the Borrower
for the next fiscal year; and
X As soon as available, and in any event within 30 days
after the end of each month, the financial statements
of the Borrower for such month, prepared by the
Borrower in accordance with GAAP; and
X As soon as available, and in any event within 30 days
after the end of each month, an aging and a listing
of accounts receivable and accounts payable of the
Borrower as of the end of such month; and
X As soon as available, and in any event within 30 days
after the end of each month, a Borrowing Base
Certificate and Covenant Compliance Certificate in
the form of Exhibit A attached hereto, completed with
amounts determined as of the end of such month; and
[ ] At least once every 12 months, and as otherwise
requested by the Bank, the current signed personal
financial statements of any guarantors of any of the
Borrower's indebtedness to the Bank (called the
"Guarantors"); and
[ ] Within _____ days after the same are filed with the
United States Internal Revenue Service, the annual
federal income tax returns of the Borrower and any
Guarantors, including all schedules, attachments and
amendments thereto; and
X Within 10 days after the Bank's request therefor,
such other information about the Borrower and any
Guarantors as the Bank may reasonably request from
time to time.
b. The Borrower shall keep accurate books and records in which
true and complete entries will be made in accordance with GAAP. Upon request of
the Bank, the Borrower, during normal business hours, shall give any
representatives of the Bank access to and permit such representatives to examine
and copy all books, records and other writings in its possession, to inspect its
property and to discuss its finances, accounts, property and business with any
of its officers and directors.
c. The Borrower shall file when due all required tax returns,
shall pay when due all taxes, assessments and other governmental charges levied
or imposed upon it or upon its income or profits or upon any of its property,
and shall pay when due all lawful claims for labor, materials and supplies
which, if unpaid, might become a lien or charge upon any property of the
Borrower; provided, that the Borrower shall not be required to pay any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
d. The Borrower shall keep and maintain its inventory,
equipment, real estate and other property necessary or useful in its business in
good condition and repair and shall pay when due all rental and mortgage
payments due on such property; provided, that nothing in this Section shall
prevent the Borrower from discontinuing the operation and maintenance of any
such property if such discontinuance is desirable in the conduct of the
Borrower's business and is not disadvantageous to the Bank.
e. The Borrower shall obtain and maintain insurance with
insurers that are acceptable to the Bank, in such amounts and with such
coverages (including without limitation professional liability insurance, public
liability insurance, fire, hazard and extended coverage insurance on all of its
assets, necessary workers' compensation insurance, and all other coverages as
are consistent with industry practice) as are acceptable to the Bank.
f. The Borrower shall not declare or pay any dividends or
other distributions on account of any shares of its stock or any of its other
ownership interests, or make any payment on account of any purchase, redemption
or other retirement of any shares of such stock or any such ownership interests,
or make any other payment or distribution on account of any shares of stock or
any ownership interests, or any warrant or option therefor, either directly or
indirectly; provided that, before the occurrence of an Event of Default, in any
fiscal year of the Borrower for which the Borrower has made an effective S
corporation election or an election to be treated as a partnership under the
United States Internal Revenue Code, the Borrower may pay dividends to its
shareholders or distributions to its members or partners in an aggregate amount
not exceeding ___________ of the Borrower's pretax net income in such fiscal
year as long as such dividends or distributions would not create an Event of
Default.
g. The Borrower shall preserve and maintain its existence and
all of its rights, privileges and franchises, and shall comply with all
applicable laws and regulations.
h. The Borrower shall not create, incur or permit to exist in
favor of any person other than the Bank any mortgage, deed of trust, assignment,
security interest or other hen on any of its property now owned or hereafter
acquired, except purchase money security interests securing indebtedness
permitted by Section 3(i)(iii).
i. The Borrower shall not incur, create, assume or permit to
exist any Funded Debt, except:
(i) Indebtedness to the Bank;
(ii) Subordinated Debt; and
(iii) Indebtedness in an aggregate amount not to
exceed at any time outstanding $100,000
incurred in the purchase (or borrowing for
the purchase) or lease of equipment.
j. The Borrower shall maintain its primary operating deposit
account at the Bank.
k. The Borrower shall comply with the following requirements
(check boxes that apply):
X The Borrower shall not permit the Borrower's Tangible
Net Worth to be less than $2,000,000.00.
X The Borrower shall not permit the Borrower's Debt
Service Coverage Ratio for any quarter of the
Borrower to be less than 1.25 to 1.
1. Year 2000 Compliance. "Year 2000 Compliance" means, with
regard to any person or entity, that all software, embedded microchips, and
other processing capabilities utilized by, and material to the business
operations or financial condition of, such person or entity are able to
interpret and manipulate data on and involving all calendar dates correctly and
without causing any abnormal ending scenario, including but not limited to all
dates in and after the year 2000. The Borrower represents and warrants to the
Bank and agrees that: (a) the Borrower has made due inquiry to determine whether
the computer applications and hardware the Borrower and the Borrower's material
suppliers and customers will be Year 2000 Compliant by January 1, 2000; and (b)
the Borrower has a plan to become Year 2000 compliant. By January 1, 2000, and
the Borrower agrees to devote adequate resources toward, diligently pursue, and
take all actions necessary to complete such plan and become Year 2000 Compliant
by January 1, 2000; and (c) to the best of the Borrower's knowledge, all of the
Borrower's material suppliers and customers will be Year 2000 Compliant by
January 1, 2000; and (d) the Borrower agrees to deliver to the Bank such
information regarding the plans and progress of the Borrower and the Borrower's
material suppliers and customers toward becoming Year 2000 Compliant as the Bank
may reasonably request from time to time, including but not limited to any
assessment by a third party of the Borrower's efforts to become Year 2000
Compliant; (e) at the Banks request from time to time, the Borrower shall order,
obtain, and deliver to the Bank a copy of audits of the Borrower's plans and
progress to become Year 2000 Compliant by January 1, 2000, and the Borrower
shall permit the Bank and the Bank's representatives to conduct audits of the
Borrower's operations for such purpose, and (f) the Borrower shall substantially
complete implementation of the Borrower's plan and remediation of material Year
2000 problems by September 30, 1999. Breach of any representation, warranty or
agreement in this paragraph, or failure of the Borrower or a significant portion
of the Borrower's material suppliers and customers to become Year 2000 Compliant
by January 1, 2000 shall constitute an Event of Default hereunder.
4. In this letter agreement:
a. "Borrowing Base" means the sum of (i) 80% of Eligible
Accounts Receivable.
b. "Capital Expenditures" means all expenditures for any
assets, or for improvements, replacements, substitutions or additions therefor
or thereto, which are capitalized on the balance sheet and which, in accordance
with GAAP, are required to be included in or reflected by the property, plant or
equipment or similar fixed asset account reflected in such balance sheet, and
shall include without limitation capitalized lease obligations.
c. "Current Assets" means the aggregate amount of assets of
the Borrower which, in accordance with GAAP, may be properly classified as
current assets, after deducting adequate reserves where proper, but in no event
including any real estate.
d. "Current Liabilities" means (i) all Debt of the Borrower
due on demand or within one year from the date of determination thereof, and
(ii) all other items (including taxes accrued as estimated) which, in accordance
with GAAP, may be properly classified as current liabilities of the Borrower.
e. "Debt" means (i) all items of indebtedness or liability of
the Borrower which in accordance with GAAP would be included in determining
total liabilities as shown on the liabilities side of the Borrower's balance
sheet on the date as of which Debt is to be determined, plus (ii) indebtedness
secured by any mortgage, pledge, lien or security interest on property of the
Borrower, whether or not the indebtedness secured thereby shall have been
assumed, plus (iii) guaranties, endorsements (other than for purposes of
collection in the ordinary course of business) and other contingent obligations
of the Borrower in respect of, or to purchase or otherwise acquire indebtedness
of others.
f. "Debt Service Coverage Ratio" for any fiscal year of the
Borrower means the ratio of (i) the Borrower's earnings before interest, taxes,
depreciation and amortization for such fiscal year, to (ii) the aggregate amount
of principal and interest payments due and payable in such fiscal year on all
Funded Debt.
g. "Eligible Accounts Receivable" means only such accounts
receivable of the Borrower as the Bank, in its sole discretion, shall deem
eligible. Without limiting the discretion of the Bank to consider any account
receivable not to be an Eligible Account Receivable, and by way of example only
of the types of accounts receivable that the Bank will consider not to be
Eligible Accounts Receivable, notwithstanding any earlier classification of
eligibility, the following accounts receivable shall not be considered Eligible
Accounts Receivable: (i) any account receivable which is not paid in full within
90 days after it is created; (ii) any account receivable as to which any
warranty is breached; (iii) any account receivable as to which the account
debtor or other obligor disputes liability or makes any claim; (iv) any account
receivable owed by any officer, director or shareholder of the Borrower or any
of their relatives or any partnership, corporation, association, joint venture
or other business entity wholly or partly owned or controlled directly or
indirectly by the Borrower or any of them or any of their relatives; (v) any
account receivable owed by any person as to whom a petition in bankruptcy or
other application for relief is filed under any bankruptcy, reorganization,
receivership, moratorium, insolvency or similar law; (vi) any account receivable
owed by any person who makes an assignment for the benefit of creditors, becomes
insolvent, fails, suspends business, or goes out of business; (vii) any account
receivable owed by the United States government or any agency of the United
States government; (viii) any account receivable owed by any person if 10% or
more in amount of the accounts receivable owed by such person to the Borrower
are considered ineligible; (ix) consignment receivables; (x) bonded receivables;
(xi) any account receivable constituting a retainage; (xii) any account
receivable for goods which have not been shipped or work which has not been
fully performed; (xiii) any account receivable owed by any person outside the
United States of America; (xiv) any account receivable owed by any person with
whose creditworthiness the Bank becomes dissatisfied; and (xv) any account
receivable in which the Bank does not have a perfected security interest
constituting a first lien. In the event the Borrower owes any amount to any
person that owes an account receivable to the Borrower, such amount owed by the
Borrower shall be deducted from that portion of the account receivable which
would otherwise qualify as an Eligible Account Receivable and only the
difference thereof shall be considered an Eligible Account Receivable. No
account receivable which does not qualify as an Eligible Account Receivable
shall be considered an Eligible Account Receivable unless the Bank, upon the
written request of the Borrower, states in writing that such account receivable
is to be considered an Eligible Account Receivable.
h. "Eligible Equipment" means the net book value of only such
equipment of the Borrower as the Bank, in its sole discretion, shall deem
eligible. Without limiting the discretion of the Bank to consider any equipment
not to be Eligible Equipment, notwithstanding any earlier classification of
eligibility, the following equipment shall not be considered Eligible Equipment:
(i) any equipment which does not meet all standards imposed by any governmental
agency; (ii) any equipment which is not located in the United States of America;
(iii) any equipment which is obsolete, or which is not usable by the Borrower in
the normal course of its business; (iv) any equipment which is on consignment to
or from any other person or entity, or which has been sold or otherwise
delivered, transferred or conveyed to any other person or entity, or which is
subject to any bailment or lease; and (v) any equipment in which the Bank does
not have a perfected security interest constituting a first lien.
i. "Eligible Inventory" means the lesser of cost or fair
market value of only such raw materials inventory and finished goods inventory
of the Borrower as the Bank, in its sole discretion, shall deem eligible.
Without limiting the discretion of the Bank to consider any inventory not to be
Eligible Inventory, notwithstanding any earlier classification of eligibility,
the following inventory shall not be considered Eligible Inventory: (i) any
inventory which does not constitute finished goods, or which does not constitute
raw materials that are to be used or consumed by the Borrower in the normal
course of its business in the processing of such raw materials into finished
goods which, upon completion, will constitute Eligible Inventory; (ii) any
inventory which does not meet all standards imposed by any governmental agency;
(iii) any inventory which is not located in the United States of America; (iv)
any inventory which is obsolete, or which is not usable by the Borrower in the
normal course of its business; (v) any inventory which is on consignment to or
from any other person, or which has been sold or otherwise delivered,
transferred or conveyed to any other person, or which is subject to any bailment
or lease; (vi) any finished goods inventory which is not held for sale by the
Borrower in the normal course of its business, or which is not saleable by the
Borrower in the normal course of its business; and (vii) any inventory in which
the Bank does not have a perfected security interest constituting a first lien.
j. "Event of Default" means any default or event of default
under any existing or future note or other agreement of the Borrower with the
Bank.
k. "Funded Debt" means all indebtedness of the Borrower for
borrowed money and capital leases, all other indebtedness of the Borrower
evidenced by notes, bonds, debentures and similar obligations, and all other
interest-bearing indebtedness of the Borrower, including but not limited to all
indebtedness to the Bank under the Revolving Note and the Term Note, but
excluding all Subordinated Debt.
l. "GAAP" means generally accepted accounting principles
consistently applied. Except as otherwise approved by the Bank in writing, all
financial reporting, financial record keeping, and financial calculations in
connection with this letter agreement shall be made on the basis of accounting
principles, methods, elections and estimates that are consistent and that are
consistent with the accounting principles, methods, elections and estimates used
in the last annual financial statements of the Borrower delivered by the
Borrower to the Bank before or upon the execution of this letter agreement, and
that fairly present the financial condition or results of operations for the
period then ended.
m. "Senior Debt" means the difference of (i) Debt, minus (ii)
the unpaid principal balance of the Subordinated Debt.
n. "Subordinated Debt" means all indebtedness of the Borrower
that is subordinated to the Bank in form and substance acceptable to the Bank.
o. "Tangible Capital Base" means the sum of (i) Tangible Net
Worth, plus (ii) the unpaid principal balance of the Subordinated Debt.
p. "Tangible Net Worth" means the difference of:
(i) the tangible assets of the Borrower which, in
accordance with GAAP, are tangible assets, after deducting adequate
reserves in each case where, in accordance with GAAP, a reserve is
proper, minus
(ii) all Debt of the Borrower;
provided, that (A) inventory shall be taken into account on the basis of the
cost or current market value, whichever is lower, (B) in no event shall there be
included as such tangible assets patents, trademarks, tradenames, copyrights,
licenses, good will, memberships, or treasury stock or any securities or debt of
the Borrower, or any officer, director, employee, agent, shareholder or
affiliate of the Borrower, or any officer, director, employee, agent,
shareholder or affiliate of any shareholder or affiliate of the Borrower, or any
other debt or securities unless the same are readily marketable in the United
States of America, (C) securities included as such tangible assets shall be
taken into account at their current market price or cost, whichever is lower,
and (D) any write-up in the book value of any assets shall not be taken into
account.
5. In addition to all other defaults and events of default, each of the
following events shall constitute a default and an event of default under each
of the Borrower's existing and future notes and other agreements with the Bank:
The Borrower's failure to comply with any provision of this letter agreement;
[ ] ____________ is no longer the __________ of the Borrower; [ ] _________
own(s) less than __________ of the issued and outstanding shares of any class of
stock or interests of the Borrower; [ ] The value of the contribution of any
member decreases from that value as of the date hereof by
______________________.
6. The Borrower consents to the personal jurisdiction of the state and
federal courts located in the State of Minnesota in connection with any
controversy relating in any way to this letter agreement or to any transaction
or matter relating to this letter agreement, waives any argument that venue in
such forums is not convenient, and agrees that any litigation initiated by the
Borrower against the Bank relating in any way to this letter agreement or to any
transaction or matter relating to this letter agreement shall be venued in
either the Minnesota District Court of the county where the Bank is located, or
the United States District Court, District of Minnesota.
7. No provision of this letter agreement can be amended, modified,
waived or terminated, except by a writing executed by the Borrower and the Bank.
The Borrower shall pay to the Bank on demand all of the Bank's costs and
expenses, including but not limited to reasonable attorneys' fees and legal
expenses, in connection with this letter agreement, the writings executed
herewith, and the transactions described herein and therein. This letter
agreement shall bind and benefit the parties and their respective successors an
assigns; provided, the Borrower shall not assign any of its rights or
obligations under this letter agreement without the prior written consent of the
Bank, and any assignment in violation of this sentence shall be null and void.
This letter agreement shall be governed by and construed in accordance with the
laws of the State of Minnesota.
8. This letter agreement supersedes and replaces all prior commitment
letters, proposal letters, term sheets, and other statements of loan terms
issued by the Bank to the Borrower, and all such letters and term sheets are
terminated.
Sincerely,
Marquette Capital Bank, N.A.
By /s/ Margaret Mary Yanez
Margaret Mary Yanez
Title Vice President
The Borrower agrees to this letter agreement.
THE BORROWER REPRESENTS AND WARRANTS TO THE BANK AND AGREES THAT THE
BORROWER HAS READ ALL OF THIS LETTER AGREEMENT AND UNDERSTANDS ALL OF THE
PROVISIONS OF THIS LETTER AGREEMENT.
Executed as of April 30, 1999.
SPANLINK COMMUNICATIONS, INC.
By /s/ Timothy E. Briggs
Timothy Briggs
Title Vice President and Chief Financial Officer
<PAGE>
Marquette Capital Bank, N.A. - Promissory Note
$1,700,000.00 Minneapolis, Minnesota
No. Date: April 30, 1999
Maker: Spanlink Communications, Inc.
FOR VALUE RECEIVED, the Maker promises to pay to the order of Marquette
Capital Bank, N.A. (the "Bank"), at its office in Minneapolis, Minnesota, or at
such other place as any present or future holder of this Note may designate from
time to time, the principal amount of One million and seven hundred thousand
dollars, ($1,700,000.00), or so much thereof as is advanced and remains
outstanding as shown in the records of the holder of this Note, plus interest
thereon from the date on which the same is advanced until this Note is fully
paid, computed on the basis of the actual number of days elapsed and a 360-day
year. Check all boxes that apply:
Interest: The interest rate under this Note is:
[ ] A fixed rate of ______ per annum.
X A variable rate that shall always be 1% per annum more than the highest
prime rate published in The Wall Street Journal, as determined by the
holder of this Note.
[ ] A variable rate that shall always be per annum more than the United
States Treasury securities constant maturities rate published in the
Federal Reserve Statistical Release, as determined by the holder of
this Note.
[ ] A variable rate that shall always be ____ per annum more than the
prior month average of the 90 day United States Treasury Bill constant
maturity rate as published monthly in the Federal Reserve Statistical
Release, as determined by the holder of this Note.
[ ] A variable rate that shall always be _____ per annum more than the
prior month average of the 30 day LIBOR rate as published in The Wall
Street Journal, as determined by the holder of this Note.
[ ] Other:
[ ] The interest rate under this Note will not exceed ______ per annum.
[ ] The interest rate under this Note will not be less than ____ per annum.
[ ] If there is a variable interest rate, the interest rate will be
adjusted based on the index rate in effect on such day.
If the interest rate under this Note is a variable rate based on an index rate
that is no longer available, the holder of this Note may select a comparable
index rate for use under this Note. If this Note provides for a variable
interest rate based on an index rate, the Bank may lend to its other customers
at rates that are equal to, more than, or less than the index rate.
Payments: The Maker shall make the following payments of principal and interest
under this Note:
X Payments of accrued interest only on the first day of each month
beginning May 1, 1999, and 1 final payment of the remaining unpaid
balance of principal and accrued interest on June 30, 1999.
[ ] ______ consecutive equal payments of _______ each on the ____ day of
each ________ beginning ________ and continuing through _________, and
1 final payment of the remaining unpaid balance of principal and
accrued interest on __________. If there is a variable interest rate
and the rate changes, the holder of this Note, at its option, may
change the amount of each remaining payment (except the final payment)
under this Note to an amount necessary to amortize the original
principal amount of this note plus interest thereon at the rate then in
effect over a _____-year period; provided, no such change shall change
the final maturity date of the Note.
[ ] _____ consecutive equal principal payments of _______ each on the
____ day of each ________ beginning ___________ and continuing through
__________, and 1 final payment of the remaining unpaid balance of
principal on ____________. Accrued interest is due and payable on the
_____ day of each ___________ beginning _____________ and on _________.
[ ] Other:
[ ] All such payments shall be debited from Borrower's account number
_________ at the Bank.
Additional Interest:
X Notwithstanding the foregoing, after the occurrence of an Event of
Default and until such Event of Default is cured, the interest rate
under this Note shall automatically increase to a rate that is 2% per
annum in excess of the rate otherwise in effect. If this Note provides
for a variable interest rate, the increased rate shall continue to vary
based on changes in the index rate.
Late Fees:
X If any payment under this Note (including but not limited to any final
payment, and any payment due by reason of default or acceleration) is
more than 10 days past due, the Maker shall pay the holder of this Note
a late fee equal to 5% of the past due amount.
Prepayments:
X All or any part of the unpaid balance of this Note may be prepaid at
any time without penalty.
[ ] At the time that any amount under this Note is paid before such
amount is due under the above payment schedule, the Maker shall pay the
holder of this Note the following prepayment fee:
Other Provisions:
X This Note evidences the Maker's obligation to repay one or more loans
under a revolving line of credit.
X This Note is an amendment, extension, renewal or replacement of the
Maker's $1,700,000.00 promissory note to the Bank dated January 29,
1999.
The extensions of credit under this Note are made under the following Section of
the Minnesota Statutes:
X 47.59
[ ] 334.01
[ ] 47.20 and 47.21
[ ] 47.59
At the option of the holder of this Note, any payment under this Note
may be applied first to the payment of charges, fees and expenses (other than
principal and interest) under this Note and any other agreement or writing in
connection with this Note, second to the payment of interest accrued through the
date of payment, and third to the payments of principal under this Note in
inverse order of maturity. Also, at the option of the holder of this Note, if
there is any overpayment of interest under this Note, the holder may hold the
excess and apply it to future interest accruing under this Note. The Maker
represents, warrants, certifies to the Bank and agrees that all advances under
this Note shall be used solely for business purposes.
The occurrence of any of the following events shall constitute an Event
of Default under this Note:
(i) any breach or default in the payment of this Note; or
(ii) any breach or default under the terms of any other note,
obligation, mortgage, assignment, guaranty, other agreement,
or other writing heretofore, herewith or hereafter existing to
which the Maker or any endorser, guarantor or surety of this
Note or any other person or entity providing security for this
Note or for any guaranty of this Note is a party; or
(iii) the insolvency, death, dissolution, liquidation, merger or
consolidation of any such Maker, endorser, guarantor, surety
or other person or entity; or
(iv) any appointment of a receiver, trustee or similar officer of
any property of any such Maker, endorser, guarantor, surety or
other person or entity; or
(v) any assignment for the benefit of creditors of any such Maker,
endorser, guarantor, surety or other person or entity; or
(vi) any commencement of any proceeding under any bankruptcy,
insolvency, receivership, dissolution, liquidation or similar
law by or against any such Maker, endorser, guarantor, surety
or other person or entity; or
(vii) the sale, lease or other disposition (whether in one or more
transactions) to one or more persons or entities of all or a
substantial part of the assets of any such Maker, endorser,
guarantor, surety or other person or entity; or
(viii) any such Maker, endorser, guarantor, surety or other person or
entity takes any action to go out of business, or to revoke or
terminate any agreement, liability or security in favor of the
holder of this Note; or
(ix) the entry of any judgment or other order for the payment of
money in the amount of $10,000.00 or more against any such
Maker, endorser, guarantor, surety or other person or entity;
or
(x) the issuance or levy of any writ, warrant, attachment,
garnishment, execution or other process against any property
of any such Maker, endorser, guarantor, surety or other person
or entity; or
(xi) the attachment of any tax lien to any property of any such
Maker, endorser, guarantor, surety or other person or entity;
or
(xii) any statement, representation or warranty made by any such
Maker, endorser, guarantor, surety or other person or entity
(or any representative of any such Maker, endorser, guarantor,
surety or other person or entity) to the holder of this Note
at any time shall be incorrect or misleading in any material
respect when made; or
(xiii) there is a material adverse change in the condition (financial
or otherwise), business or property, of any such Maker,
endorser, guarantor, surety or other person or entity; or
(xiv) the holder of this Note shall in good faith believe that the
prospect of due and punctual payment or performance of this
Note or the due and punctual payment or performance of any
other note, obligation, mortgage, assignment, guaranty, or
other agreement heretofore, herewith or hereafter given to or
acquired by the holder of this Note in connection with this
Note is impaired.
Upon the commencement of any proceeding under any bankruptcy law by or
against any such Maker, endorser, guarantor, surety or other person or entity,
the unpaid principal balance of this Note plus accrued interest and all other
charges, fees and expenses under this Note shall automatically become
immediately due and payable in full, without any declaration, presentment,
demand, protest, or other notice of any kind. Upon the occurrence of any other
Event of Default and at any time thereafter, the then holder of this Note may,
at its option, declare this Note to be immediately due and payable and thereupon
the unpaid principal balance of this Note plus accrued interest and all other
charges, fees and expenses under this Note shall automatically become due and
payable in full, without any presentment, demand, protest or other notice of any
kind.
The Maker: (i) waives demand, presentment, protest, notice of protest,
notice of dishonor and notice of nonpayment of this Note; (ii) agrees to
promptly provide the holder of this Note from time to time with the Maker's
financial statements and such other information respecting the financial
condition, business and property of the Maker as the holder of this Note may
request, in form and substance acceptable to the holder of this Note; (iii)
agrees that when or at any time after this Note becomes due the holder of this
Note may offset or charge the full amount owing on this Note against any account
then maintained by the Maker with the holder of this Note without notice; (iv)
agrees to pay on demand all fees, costs and expenses of the holder of this Note
in connection with this Note and any transactions and matters relating to this
Note, including but not limited to audit fees and expenses and reasonable
attorneys' fees and legal expenses, plus interest on such amounts at the rate
set forth in this Note; and (v) consents to the personal jurisdiction of the
state and federal courts located in the State of Minnesota in connection with
any controversy related in any way to this Note or any transaction or matter
relating to this Note, waives any argument that venue in such forums is not
convenient, and agrees that any litigation initiated by the Maker against the
Bank or any other holder of this Note relating in any way to this Note or any
transaction or matter relating to this Note, shall be venued in either the
Minnesota District Court of the county where the Bank is located, or the United
States District Court, District of Minnesota. Interest on any amount under this
Note shall continue to accrue, at the option of the holder of this Note, until
such holder receives final payment of such amount in collected funds in form and
substance acceptable to such holder.
No waiver of any right or remedy under this Note shall be valid unless
in writing executed by the holder of this Note, and any such waiver shall be
effective only in the specific instance and for the specific purpose given. All
rights and remedies of the holder of this Note shall be cumulative and may be
exercised singly, concurrently or successively. The Maker, if more than one,
shall be jointly and severally liable under this Note, and the term "Maker",
wherever used in this Note, shall mean the Maker or any one or more of them. All
references in this Note to the holder of this Note shall mean the Bank and any
and all other present and future holders of this Note. This Note shall bind the
Maker and the heirs, representatives, successors and assigns of the Maker. This
Note shall benefit the holder of this Note and its successors and assigns. This
Note shall be governed by and construed in accordance with the internal laws of
the State of Minnesota (excluding conflict of law rules).
THE MAKER REPRESENTS AND WARRANTS TO THE BANK AND AGREES THAT THE MAKER HAS READ
ALL OF THIS NOTE AND UNDERSTANDS ALL OF THE PROVISIONS OF THIS NOTE.
Address of Maker: Maker:
7125 Northland Terrace Spanlink Communications, Inc.
Minneapolis, MN 55428
Telephone: 612-971-2000
By: /s/ Timothy E. Briggs
Title: Vice President and Chief
Financial Officer
<PAGE>
AMENDMENT TO NOTE AND LETTER AGREEMENT
This Agreement is made as of 15th day of August, 1999, by and between MARQUETTE
CAPITAL BANK, N.A., a national banking association, having its principal office
at 4000 Dain Bosworth Plaza, Sixty South Sixth Street, Minneapolis, MN 55480
(the "Bank") and SPANLINK COMMUNICATIONS INC., a Minnesota Corporation (the
"Borrower").
RECITALS
A. The Borrower executed and delivered to the Bank that certain Letter
Agreement, dated April 30, 1999 (the "Letter Agreement") pursuant to
which agreements were made between the Borrower and the Bank regarding
advances under the following promissory note:
$1,700,000 Revolving Promissory Note dated April 30, 1999,
amended July 6, 1999 ("Revolving Note");
B. The Borrower and the Bank have determined that it is desirable to
extend the maturity of the Revolving Note.
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
1. The maturity date of the Revolving Note is hereby extended to April 30, 2000.
2. Section 4a of the Letter Agreement is amended to read as follows:
a. "Borrowing Base" means the sum of 75% of Eligible Accounts
Receivable, per Borrowing Base Certificate attached hereto.
3. The Revolving Note and Letter Agreement are amended only to the extent
necessary to reflect the changes set forth herein.
IN WITNESS WHEREOF, the parties hereto have each duly executed this Agreement
effective as of the day and year first above written.
MARQUETTE CAPITAL BANK, N.A. SPANLINK COMMUNICATIONS INC.
By: /s/ Margaret Mary Yanez By: /s/ Timothy E. Briggs
Margaret Mary Yanez Timothy E. Briggs
Its Vice President Its Vice President
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No 333-14949 and 333-62745) of Spanlink Communications,
Inc. of our report dated February 10, 2000, except for Note 14 as to which the
date is March 21, 2000, relating to the financial statements, which appears in
this form 10-KSB.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-1999
<PERIOD-START> DEC-31-1999
<PERIOD-END> JAN-01-1999
<EXCHANGE-RATE> 1
<CASH> 248,564
<SECURITIES> 0
<RECEIVABLES> 2,926,460
<ALLOWANCES> 0
<INVENTORY> 518,278
<CURRENT-ASSETS> 4,043,896
<PP&E> 974,449
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,524,496
<CURRENT-LIABILITIES> 3,191,936
<BONDS> 0
0
0
<COMMON> 8,308,446
<OTHER-SE> (6,268,145)
<TOTAL-LIABILITY-AND-EQUITY> 5,524,496
<SALES> 9,602,882
<TOTAL-REVENUES> 9,602,882
<CGS> 4,284,158
<TOTAL-COSTS> 4,284,158
<OTHER-EXPENSES> 6,559,438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,224
<INCOME-PRETAX> (1,369,938)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,369,938)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,369,938)
<EPS-BASIC> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
